Juncker talks state of the union. Macri tries to shore up trust. Aung San Suu Kyi visits U.S. BOE sets rates. U.S. sales figures released. All in The Week Ahead.
Juncker may give hints of EU path forward at parliamentary speech
On Wednesday, European Commission President Jean-Claude Juncker will give his “state of the union” speech to the European Parliament. While his speech has been kept under wraps up to this point, President Juncker may begin the discussion of what a European Union might look like without the United Kingdom. He is also expected to explore security and the EU economy.
The recent strong showing of the right wing AfD in German local elections last week has likely jolted EU leadership into further concerns that rising populism and populist movements across Europe will undermine EU priorities and initiatives. The UK vote on Brexit was driven at least in part by a crescendo of populism and anti-EU animus, and has upended ongoing international negotiations and created a surge of economic uncertainty to a continent suffering from persistently weak economic growth.
It is difficult to perceive exactly in what direction his speech is likely to go; the Socialists & Democrats chair indicated last week in a meeting with President Juncker that support from their caucus cannot be guaranteed in initiatives that have to run through the European Parliament, and the S&D presented a laundry list of priorities it wants addressed in order to continue supporting President Juncker. And with those on the center-right (including Angela Merkel’s Christian Democrats) looking to their right flank out of fear that an AfD, PiS, or UKIP may upend their position or control, the current strain of populism running through Europe could lead to political paralysis on both sides of the ideological spectrum. It will have to be up to leaders like President Juncker to weather this ongoing political crisis while trying to maintain a semblance of economic stability, though as recent votes have indicated, this will be very difficult to accomplish.
Argentina tries to turn around global market perceptions
On Tuesday, Argentina will host the Business and Investment Forum in Buenos Aires, with a major interview of President Mauricio Macri and major telecommunications leaders. With the election of PRO Buenos Aires mayor Macri last year over FpV candidate Daniel Scioli, the Argentine government has moved aggressively to regain trust with global markets. The Macri administration quickly concluded the Argentine government’s dispute with U.S. debt holdouts to allow for international market access.
It has also worked to reduce tensions with the UK over the Malvinas/Falkland Islands dispute, and has been relatively muted in its interactions with troublesome neighboring countries (particularly Venezuela). This is likely due, at least partially, to the fact that foreign minister Susana Malcorra is in the running to become the next Secretary General of the United Nations, following the conclusion of Ban Ki-Moons’ term (though recent straw polls with the UN Secretary Council would appear to indicate that the foreign minister’s bid may be falling behind, removing this from the table).
President Macri’s endeavors may be helped by the commotion all around him. Although the removal of Dilma Rousseff from Brazil’s presidency may have ended her impeachment saga, Brazil still has economic headwinds as well as a somewhat chaotic political environment. Further north, Venezuela’s economy is in utter shambles, as civil servants and doctors increasingly turn to illegal mining to forge a living (and contract malaria in the process). However, Argentina may face some stiff competition from other neighbors. Pro-market economist, and now Peruvian President Pedro Kuczynski (PPK), is widely popular and looking to encourage a pro-market international reputation for the Peruvian economy. And in Colombia, the recent agreement between the Santos government and FARC rebels has removed one of the most persistent bugbears for one of South America’s largest pro-market economies.
Burmese leader meets with President Obama
On Wednesday, Foreign Affairs Minister and president of the League for Democracy Aung San Suu Kyi will visit Washington, DC after effectively becoming the leader of Burma, where she is slated to meet with President Obama and possibly Congressional leaders. This meeting will likely be helpful for Minister Aung San Suu Kyi for two reasons.
First, it will reaffirm U.S. commitment to Burma engaging in peaceful democratic processes, both in rhetorical and diplomatic channels (as well as with the removal of economic sanctions and support for capacity building and economic reform). Second, it will help the foreign minister recover from some of the slight missteps that occurred in last week’s peace conference between armed and unarmed ethnic minority groups. Although the peace conference was pitched as a first step in a long process (with a follow-up conference tentatively scheduled for 6 months from now), several perceived snubs and diplomatic miscues contributed to the confusion of the conference. Although Aung San Suu Kyi is still popular in Burma, further tension with armed ethnic groups, particularly the Wa, could mar efforts by her and her party to reform the Burmese political and economic systems, particularly as many of the ethnic groups at the conference have pushed for wholesale reforms of the entire political system, including decentralizing power, creating new states, and completely rewriting the 2008 constitution.
Bank of England forecast to keep interest rates steady, though meeting minutes could indicate Bank leanings
On Thursday, the Bank of England will release its September interest rate decision. Market analysts are expecting the Bank to keep interest rates at 0.25% after it lowered its rate in August from 0.50%. The market is also not expecting a major change in its asset purchase program valued at over $500 million. Despite a stable forecast for Bank decisions for the September meeting, the release of its August 4 meeting minutes could be indicative of the relative unease held by BOE board members when it made its interest rate cut. The meeting minutes may also indicate how board members feel regarding the fallout from the Brexit vote, and whether and how to adjust bank decisions accordingly.
This will follow a Tuesday meeting in parliament between the newly-minted Secretary of State for Exiting the European Union David Davis and the Foreign Affairs Committee in the House of Commons. The UK government seems to be continuingly at a loss regarding the most fundamentally important elements of Brexit: how can the UK expect to remain in the European Union’s free trade zone without accepting the free movement of people? When exactly are negotiations expected to begin? What will plan B be in the event that the European Union refuses to accept a special deal for the UK with a free trade zone and limited movement of peoples? Will EU citizens be allowed to remain in the UK post-Brexit? And how exactly will it create the necessary institutional infrastructure that it has previously relied upon the EU for in key fields like international trade negotiations? These and more are likely to be major questions at the meeting today, and may help to inform the BOE’s interest rate and asset buying positions in the months (and possibly years) ahead.
Inflation and sales figures released as U.S. heads for end of presidential election cycle
On Thursday, U.S. retail sales figures will be released for the month of August, with many suggesting consumer spending rose and will help boost summer growth. This will be followed on Friday with inflation data from the Department of Commerce, with some hints that inflation may have picked up for the month. While both measures are likely to be moderate upticks, they could nevertheless impact the election by shifting attention away from economic issues and toward foreign policy and domestic non-economic policies (like immigration reform).
This would likely put Republican candidate Donald Trump at a disadvantage, for several reasons. First, voters typically believe Trump would handle the economy better than Secretary of State Hillary Clinton, but do not trust him nearly as much on foreign policy and diplomacy (or immigration reform). Second, typically the largest indicators of whether the incumbent party will win reelection to the presidency are the popularity of the incumbent officeholder (in this case, President Obama) and the overall strength of the U.S. economy. Third, Secretary Clinton will be able to turn to the strengthening economy and the Obama administration as an element of her administration that she would seek to continue.
The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
The Week Ahead is written by GRI analyst Brian Daigle.
