Syrian Support Group meets. Argentina reenters global debt bond market. Russia-Iran trade deals loom. Global metals conferences on the horizon. G7 convenes in Japan over economic policy. All in the Weekly Risk Outlook.
Foreign ministers from Syrian Support Group meet to discuss peace negotiations
On Monday the foreign ministers of the 17 countries of the Syrian Support Group will convene in Vienna for a 2-day summit in an attempt to restart peace negotiations following a failed effort to do so in April. Both the Foreign Minister of Russia, Sergei Lavrov, as well as U.S. Secretary of State, John Kerry, will be in attendance, and are likely to guide the discussion.
It is difficult to gauge what meaningful progress could occur between so many parties when several of the most important facts on the ground remain relatively unchanged. Opposition force positions in Syria remain unstable in some regions and several humanitarian crises have illustrated the desperation facing many of those in key strongholds like Aleppo. During previous instances of weakness on the part of opposition forces, the Assad government has generally dug in on terms. In fact, several have argued that Syrian government actions against rebel forces preceding peace talks are exactly because they want to negotiate from a position of strength.
Given that even the most fundamental elements of any peace process have yet to be agreed upon — whether Assad actually steps down and how, what kind of government would be inaugurated, etc. — and that opposition forces themselves remain divided on several key issues, it remains to be seen what significant achievements could occur in this week’s meeting aside from drawing further international attention to the issue.
Argentina prepares to reenter the corporate debt bond market
On Monday, Argentina’s Banco Hipotecario SA will offer as much as $200 million in 2020 bonds. This will represent the first time since July 2014 that the private sector was allowed to offer corporate debt to international creditors following the Macri administration’s conclusion of the sovereign debt dispute with U.S. bondholders.
This new opening could potentially be significant for international creditors, particularly those focused on South American bond offerings. Brazil’s macroeconomic as well as geopolitical landscape is faltering significantly, with President Rousseff’s impeachment and temporary removal from office last week serving as the culmination of months of political infighting. However, if it appears that the new government of PMDB leader and former VP, Michel Temer, fails to live up to expectations — an unexpected development during the Rio Olympics, an expansion of the Zika virus, or the indictment of any major political figures in the PMDB including his newly-formed cabinet — investors may panic and look for safer investments nearby.
Given the reentry of Argentina and the new investment opportunities in sovereign and corporate debt, the political and economic worries of Argentina’s neighbors could provide a welcome boost to the country’s struggling economy, particularly given its years of negative financial press.
Russia-Iran officials come together as nuclear deal brings Iran back to the international stage
On Tuesday, Astrakhan, Russia will host the Russia-Iran Forum. Attendees will include the First Deputy Premier, Energy Minister, and Deputy Economy Minister of Russia, as well as Iran’s Communications Minister. Following implementation of the nuclear deal signed between Iran and the United States, Germany, Russia, France, China, and the UK, and the lifting of UN sanctions, companies across the world have looked much more closely at investing in the middle class oil behemoth with an 80 million consumer base.
Russia, a major strategic ally of Iran, and Russian businesses stand to benefit significantly from further investment so long as its preexisting ties can be leveraged successfully. However, though the potential gains may be significant, for many investors, particularly those in the U.S. or those who operate with U.S. banks, the political and legal winds have not shifted sufficiently to ensure that their investments don’t run afoul of both the law and politics. Russian companies and industry, not moored by domestic legal barriers or geopolitical headwinds for investing in Iran, could gain significant market attention and market share so long as western companies remain wary.
However, Russia will also not necessarily be able to negotiate from a position of economic or political strength, given both its ongoing recession as well as the economic and political barriers resulting from its actions in Ukraine. This could provide Iranian business and public negotiators an opening to negotiate from a position of, if not strength, at least a degree of equity.
Metals conferences will explore key commodities markets in troubling times
On Tuesday, the International Gold and Silver Symposium will be held in Lima, Peru, while Perth Australia will host the mining-focused Latin America Downunder Conference. These conferences will be followed on Wednesday with a Bloomberg Intelligence precious metals forum organized by the London Platinum and Palladium Market Association.
Although occurring on three different continents, these conferences will explore a development that has rippled across many key emerging economies: the downturn of the metals markets. Although many of the precious metals under discussion including gold, silver, and platinum have not suffered the same dramatic reductions in value experienced in other metals like copper, they have been affected in ways unlike key productive metals due to their use as a store of value. As a result, countries that have major mining operations in these metals have suffered overall reductions in investment as money flows to more predictable revenue sources.
Though most metals have recovered from their 2014 or 2015 lows, lingering questions remain over whether the pace of investment in the metals industry will ever again reach the nearly breakneck pace that marked the early to mid-2000s. Should mining investments slow appreciably in the medium or long-term several governments, particularly those in Latin America and Africa, will need to reconsider the assumptions that underpinned their economic policies. This is one of the reasons why Julio Velarde, president of the Central Bank of Peru, will be one of the speakers at the Gold and Silver Symposium.
G7 economic leaders meet in Japan to discuss fiscal and monetary policy
On Thursday, the finance ministers and central bank governors of the G7 states — the United States, France, Germany, the UK, Japan, Canada, and Italy — will meet in Sendai, Japan to discuss a number of key economic issues that have had political as well as economic spillover effects. One of the major topics of discussion is likely to be exchange rate policies.
Several countries, the United States in particular, have had major political forces question the policies of governments to artificially lower the value of their domestic currencies relative to other currencies to artificially boost exports. The U.S. is one of the biggest critics of in part because the U.S dollar, which effectively serves as the global reserve currency, is frequently perceived to be the target of such policies. Several countries, Japan and China in particular, have noted that the definition of currency manipulation remains a slippery one, and that differing standards could illustrate either currency manipulation or nothing of the sort. Regardless, the United States is likely to raise the issue given the significant political blowback the issue receives from across the U.S. political spectrum.
Other less divisive and controversial issues, including the call to expand fiscal policy are likely to also be discussed ahead of next week’s leaders’ summit. Coordination on monetary policy will most likely help markets: countries across the developed and developing world have acted in discordant and in some cases seemingly contradictory and needlessly surprising ways when it comes to monetary policy. A shared approach could limit the beggar-thy-neighbor policies that have frequently marked global monetary policy during periods of weak or volatile growth in the past.
