The Week Ahead

The Week Ahead
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French elections slide into greater uncertainty as right and far-right face new headwinds. U.S. unemployment numbers could make March rate hike almost certain. China GDP growth goal take center stage at NPC. Russia connections continue to drag down Trump administration. All in The Week Ahead.

French elections slide into greater uncertainty as right and far-right face new headwinds

As the French presidential race heads to its first round on April 23, both the Republicans and National Front candidates have entered into legal hot water. Last week, the European Parliament withdrew the legal immunity that had been extended to MEP and FN presidential candidate Marine le Pen, which shielded her from prosecution for publicly posting the unfiltered images of ISIS fighters executing U.S. journalists. After a prosecutor in Nanterre requested the European Parliament lift her immunity for violating French law banning the distribution of violent images, the European Parliament complied and the case is likely to proceed. Le Pen is also under investigation for a misuse of government funds — it is alleged that staff members were paid for jobs in the European Parliament that did not exist.

Further complicating election matters, Republican candidate Francois Fillon is also under investigation and will be formally charged for embezzling public funding. Likely as a result of both investigations, independent candidate Emmanuel Macron has risen in the polls, for the first time overtaking Marine le Pen’s lead (27% to 25.5%). While le Pen being charged for illegally distributing ISIS imagery is not likely to dent her support, Fillon’s upcoming indictment is very likely to affect his. Republicans are already calling for Fillon to step down, and his campaign has been shedding staffers. Should he voluntarily step down and be replaced by Alain Juppe, this would again alter the landscape and make le Pen’s victory less likely, given that Juppe is understood to have a broader base of potential support than Fillon.


U.S. unemployment numbers could make March rate hike almost certain

On Tuesday, February non-farm payrolls will be released, with no current projections that a major change is likely. Should the results be positive or even marginally negative, the likelihood of a March rate hike for the Federal Reserve will be fairly high, and U.S. markets have already begun to price this in. Federal Reserve board members have been dropping hints over the past two weeks that a rate hike was likely this month, and the Fed has indicated it expects rate hikes to occur though it has been somewhat vague on when.

Given the current positive economic environment in the United States but the substantially uncertain economic environment in the medium term, the Federal Reserve may be moving to shore up interest rates while it still can in order to provide an economic boost to the U.S. economy in the event of an unexpected downturn, due to economic or non-economic disruptions. The uncertainty in European elections in France, the Netherlands, and Italy could introduce a substantial degree of economic uncertainty if anti-establishment candidates or political parties gain sufficient power to guide policy and the membership of the European Union.  This may be providing a strong rationale for the Fed to create a buffer in the event of future economic turmoil.


China GDP growth goal take center stage at NPC

As part of the National People’s Congress (NPC), which began last weekend, the leaders of China are planning on laying out the nation’s 2017 GDP growth target. There are currently rumors that the NPC will issue a statement in support of growth at “around” 6.5%, suggesting it is willing to allow a slight slide in GDP growth away from previous projections.

Other components of the NPC worth looking for include a possible indication of the Party’s preference for Hong Kong’s new Chief Executive. The election will be on March 26th and the Chief Executive will be chosen by the 1,194-member Election Committee. The race is currently between Carrie Lam, current Secretary for Administration, and Finance Secretary John Tsang. Lam is rumored to be China’s preferred candidate, which, if more firmly articulated at the NPC, could firm up support from the pro-Beijing electors in the Committee. Lam is likely to win anyway — nearly half of the Committee voted to nominate her, falling around 20 votes short of a majority, while Tsang had to rely on the pro-democracy officials that constitute a minority — which may make Beijing reticent to tilt the scales too heavily and prompt a backlash.


Russia connections continue to drag down Trump administration

Last week, it was revealed to the Washington Post that Attorney General Jeff Sessions had had at least two undisclosed meetings with the Russian Ambassador to the United States, Sergey Kislyak, in 2016, in direct contradiction to his sworn testimony to the Senate Judiciary Committee during his confirmation hearings. He subsequently announced he would recuse himself from any investigation relating to the presidential campaign’s contact with Russia. This is only the most recent in a string of administration officials that have either been removed from office for undisclosed Russian ties or are currently under a cloud of suspicion. This recent admission led several prominent Democrats in the House and Senate to not just call for his recusal from any Russia investigation, but also to resign for committing perjury. These ties are likely to continue to be revealed as subsequent leaks occur and investigative journalists dig deeper into connections between Russian officials and the campaign.

From a political perspective, the most important question for Congressional Republicans is whether the benefit of a President Trump outweighs the cost of these swirling doubts. Reticence on the part of Republican elected officials in either house to investigate ties or speak out against acts that they clearly would have criticized in the previous administration indicate that at this point, the benefits outweigh the costs. But if Congressional Republicans become convinced that his administration will be an albatross heading into the 2018 midterm elections, the absence of a critical mass of Trump-Republicans in either house will make it very difficult for him to sustain such scrutiny.

 

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.

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