Weekly Risk Outlook

Weekly Risk Outlook
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Super Tuesday 2.0 looms. Argentine Congress ends creditor saga. Chinese Premier delivers press conference. EU, Turkish leaders meet. Colombia may raise rates. All in the Weekly Risk Outlook.

Super Tuesday 2.0: Big night for both parties as major states up for grabs

On Tuesday, the states of Florida, Illinois, Missouri, North Carolina and Ohio will hold their primary selection process for president. On the Republican side, this will net them 358 delegates (29% for a Republican convention majority) and 691 for the Democrats (29%).

Stakes are high for both sides of the aisle, but arguably much higher on the Republican side.

Both Ohio (66 delegates) and Florida (99 delegates) will see all the delegates from the state go to the winner, giving a major boost for any of the Republican candidates.

Anti-Trump forces have pinned most of their hopes on Ohio Governor John Kasich winning Ohio and Florida Senator Marco Rubio winning Florida to deny Donald Trump those 165 delegates.

However, recent polls have shown Senator Rubio well behind Donald Trump in Florida, which would effectively end his campaign and could lead him to drop out.

On the Ohio side, the race is much closer between Governor Kasich and Trump but if Trump prevails, it will also effectively shut out Kasich and deny the two candidates any viable path to a nomination.

In the event Kasich wins Ohio and performs strongly in Illinois, and Rubio drops out, establishment Republican support could swiftly consolidate around Kasich (as most establishment Republicans strongly dislike both Donald Trump and Senator Ted Cruz).

On the Democratic side, former Secretary of State Hillary Clinton is polling ahead in all five states and should she prevail (particularly in delegate-rich Florida), she will expand her 200+ delegate advantage. Unlike the Republican side, Senator Bernie Sanders is unlikely to drop out (given his strong fundraising numbers he can fight to the convention).

Clinton’s polling advantages, at this stage, should be taken with a grain of salt; previous polling aggregations showing Clinton 21 points ahead in Michigan were all wrong, as Sanders ended with a 2-point victory.

It will likely be a nail-biter for both sides.

 

Argentine Congress ends holdout creditor saga

On Tuesday, the Argentine Senate and Chamber of Deputies are expected to hold a vote to repeal parts of the Padlock Law and Sovereign Payment law to allow Congress to end the holdout creditor crisis with U.S. bondholders.

This may be hindered by moves by the Kirchnerite FpV to punt the holdouts bill as a national referendum, but this is likely to fail to secure majority support in Congress (it could slow the process down though).

In addition to amending the laws to move forward on repaying the creditors, the government is likely to issue as much as $15 billion in government bonds, of which nearly $12 billion will be used to pay off the current bonds. The bonds are expected to be split with 5, 10, and 30-year maturities and should be officially offered in mid-April.

Argentina’s investment environment has improved considerably since the inauguration of PRO-leader Mauricio Macri. Export tariffs on a number of key items have been eliminated, Argentina has shifted the narrative in favor of pushing the Mercosur-EU trade negotiations, and has advocated improved relations with the United States and European Union.

The end of these holdout creditor negotiations, in addition to opening up the country to international investment, should improve Argentina’s international standing among investors and market-watchers.

Given Brazil’s dramatic fall in economic prospects for this year (and likely next year), Argentina could become an increasingly attractive environment for investment in South America.

 

Chinese Premier delivers end of National People’s Congress press conference

On Wednesday, Chinese Premier Li Keqiang will deliver the national press conference following the conclusion of China’s NPC.

It will represent a major opportunity for the Chinese government to convince a skeptical international investment environment that the country remains committed to reforming its economy.

However, developments throughout the Congress would seem to indicate that the Chinese government has little intention of making the difficult decisions that could lead to upheaval.

One senior planning official indicated that the economy would “absolutely not” suffer a hard landing with reforms, and it appears likely that the government intends to focus on growth rather than reform. This could lead to a number of potentially unnecessary public investment projects.

Elevating growth would likely require an expansion of credit to already highly indebted companies in China, and could ensure that the renminbi remains unstable in currency markets as government desires for boosted exports and a weak currency counter other government desires for a strengthened currency to elevate the reputation of the renminbi to international markets.

The lack of a united, reform-focused front on the part of the Chinese government will likely keep prospects both for the Chinese and global economies unstable in the year ahead.

 

EU and Turkish leaders meet to discuss migrant crisis

On Thursday, EU leaders will meet with Turkish Prime Minister Ahmet Davutoglu. Last week’s preliminary deal between the EU and Turkey to control Syrian migrant flows in exchange for an additional €3 billion, expanded visa liberalization and an acceleration of Turkey’s EU application have all received harsh criticism from MEPs and human rights advocates.

Manfred Weber, leader of the European Parliament’s EPP indicated that although it will help stem the flow of refugees, he and the party are concerned that the EU gave up too much leverage to Turkey. The deal was also criticized by the S&D and the ALDE.

EU leaders were surprised and angered by Turkey’s surprise proposals last week, which led to scrambling by EU leaders as they work to determine the best path forward.

Additionally, the Turkish government’s takeover of one of Turkey’s largest newspapers, Zaman, was viewed by some as a show of strength. EU leaders were relatively quiet regarding Erdogan’s attitude toward free speech and a free press, suggesting the EU’s longstanding democratic stances might be taking a backstage as the refugee crisis takes increasing prominence across Europe.

 

Colombia may raise interest rates for 7th time in a row

On Friday, the Colombian Bank of the Republic will likely raise interest rates for a 7th straight time as the country grapples with increasingly troubling inflation.

Although the interest rate is likely to be raised to 6.5%, much lower than Argentina or Brazil, the persistent rise since October is troubling for South America’s 3rdlargest economy and for the continent’s economy as a whole.

Although Argentina’s economy appears to be improving, it is coming up from a deep macroeconomic and inflationary hole. Brazil appears to be in economic apoplexy as low commodity prices, political pressures, droughts, and dam collapses create havoc.

Colombia is facing a number of pressures similar to its neighbors: weakening commodity prices have hampered the profitability of exports, low oil prices have reduced growth prospects for the country (and all other major oil producing economies in the region, like Venezuela and Ecuador), and falling demand from China and other major economies is reducing growth potential.

Additionally, trade with its weakening regional trade partners has dimmed, creating a vicious cycle of growth reduction.

If Colombia is unable to break itself out of high inflation (currently nearing 8%) and dimming growth, it will likely have contagion effects across South America’s economies.

 

The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.

The Weekly Risk Outlook is written by GRI analyst Brian Daigle.

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