Trump’s inauguration. May’s Brexit plans. ECB meeting. All in The Week Ahead.
Trump enters office
On Friday, President-Elect Trump will be formally sworn in as President for a full 4-year term. The event is expected to harken a major shift in U.S. domestic, and possibly foreign, policies, some of which could begin within the first week following inauguration and others potentially to take years.
A number of President Obama’s executive orders relating to climate change, workplace and housing non-discrimination policies could be rescinded immediately, while others (including the Iran nuclear deal and relations with Cuba) are up in the air. The House and Senate Republicans are also pushing to quickly repeal the Affordable Care Act (ACA), but are running into a few problems on what a replacement (if any) would even look like, which has led to significant uncertainty not only for the 20 million people who rely on the ACA for health insurance, but also the health insurance industry and hospitals. All political U.S. ambassador appointments will also be voided that day, which means the U.S. ambassadors to the United Kingdom and several major allies will be replaced by the embassy chargé d’affaires until ambassador nominations and Senate confirmations occur over the coming months.
Both the President-elect’s comments and the actions from Congress have led to significant swings in the market (and with particular companies he intends to unleash his wrath upon), and market instability is almost certain to occur if his administration looks likely to be unstable and erratic. The following day, a group known as the Women’s March on Washington is expected to draw at least 200,000 protesters. Whether the March is successful in creating a major political movement will become clear in the weeks ahead, and may help shape the the political environment of the 115th Congress.
May lays out Brexit plan
On Tuesday, Prime Minister Theresa May is expected to unveil her “vision” for Brexit, referred to as her spokeswoman as her plan to create a “truly global Britain”. Reactions by markets following the Brexit vote were somewhat similar to those following the U.S. presidential election; talks of a big drop off were largely incorrect as market participants assumed that Brexit and a Republican presidential administration would generally be good for business (with a few exceptions). However, both markets have also seem to have increasingly turned to a come to Earth movement as the potential negative ramifications of Brexit and the next administration become clearer.
Prime Minister May’s Brexit speeches have led to significant swings in the value of the pound (usually downward), so the pound will likely be the biggest respondent to her speech. Any discussions of a hard Brexit (which is likely the direction the PM she will pursue) will push the value of the pound down further and could spook other markets. Statements from Europe haven’t exactly bolstered expectations that Britain will be treated with kid gloves by the EU; last week, Maltese Prime Minister Joseph Muscat informed reporters that the EU member states had rarely had as much unity as it did when it came to Brexit, and that the EU would not provide an easy exit for the UK.
This year could become profoundly bumpy if 2 members of the G7 embark on politically and economically unstable or inconsistent decisions that require markets to guess what next steps might be, and the initial hints from both sides of the Atlantic are not encouraging. This may be Prime Minister May’s only moment early on to set a clear path for Brexit so that companies can make their adjustments. If she and her cabinet remain divided, businesses could end up with a hair-trigger mentality.
ECB talks rates
This Thursday, the ECB is not expected to change its policy, though it may begin to further taper bond purchases. The inflation rate for the euro is creeping up, and may actually approach 2% in the near future. The ECB and European policymakers remain concerned that despite growth beginning to pick up, a European and U.S. turn towards protectionism and reactionary politics could damage the fairly fragile euro.
The potential of protectionist policies from the United States could damage growth and economic stability in the EU, and the possible election of populists in Europe to major positions of power (in all likelihood with Marine le Pen’s name at the top of the list) could make the ECB even more cautious. This would make its behavior similar to that of the Federal Reserve, which last year had forecast 3 interest rate hikes in the next year (there were 2), and this year expecting 2 interest rate hikes over the course of the next three years. This caution from major sovereign banking institutions may prevent the bank from accidentally creating a crash (like, for example, raising rates to quickly and leading to over-inflation), but this also means that in the event of an economic crisis, it may not have much to do at least in terms of interest rate reductions.
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.
This edition of The Week Ahead was written by GRI Analyst Brian Daigle.
