Brazil likely to lower interest rates again as political turmoil continues. Trump inner circle to testify privately to Senate committee on Russian interference in election. Possible talks between North and South Korea. OPEC parties to meet in Russia as oil markets remain on edge. All in The Week Ahead.
Brazil likely to lower interest rates again as political turmoil continues
The Brazilian Central Bank has become a locus for stability in a country that craves stability. The Central Bank is expected to lower interest rates again this week in its monthly rate meeting, after reducing the Brazilian interest rate several times since last October. The rate has been reduced from its relatively stable 14% to now around 10%, with further rate cuts projected ahead. The decline in inflation, now hovering at around 4.75% and roughly within range of Brazil’s inflation targets, has contributed to an estimation by the bank that lowering interest rates would be a prudent course of action.
Given that several recent rate cuts have been substantial, with some as high as or higher than 1%, many are expecting another big rate cut this week, which would bring the interest rate to a little over 9%. The decline of Brazil’s political fortunes, with nearly all major parties and political figures embroiled in the Petrobras scandal in one way or another, is not helping Brazil’s economic prospects. President Temer came into office promising a range of reforms and cost cutting measures to improve Brazil’s economic position abroad, but the continuing drip, drip, drip of the scandals is costing legislative time and causing allies to consider other options.
Trump’s inner circle to testify privately to Senate committee on Russian interference in election
This week, Paul Manafort, President Trump’s former campaign manager, and Trump’s son, Donald Trump Jr., will meet privately with Senators and staff from the Senate Judiciary Committee. This testimony, according to Judiciary Committee Chairman Chuck Grassley, will be followed by public testimony at some point in the future. This marks another development in the ongoing effort to uncover the extent of Russian influence in the 2016 presidential election, and what assistance was sought or offered by members of the Trump campaign. The testimony of Donald Trump Jr. comes following the New York Times revelation that he met with several Russian individuals with ties to the Kremlin in a meeting last summer, with an email chain showing that they had compromising information on the Clinton campaign and that the Russian government sought to assist the Trump campaign.
The Russia collusion scandal has consumed every free moment of the administration, and has distracted the executive branch from working with the Senate and House on advancing meaningful legislation: an infrastructure bill that had been discussed is going nowhere, there have been several failed attempts to pass some form of Affordable Care Act repeal, tax reform is likely to involve a host of complex factors that have barely been discussed, and the U.S. position abroad is faltering. Meanwhile, the Congress and White House still need to pass a budget and raise the U.S. debt ceiling, both by the end of September.
Will North Korea finally embrace the South’s invitation for talks?
Last week, South Korean President Moon Jae-in extended an invitation to the North Korean government for talks to prevent an escalation of conflict along the militarized border between the two countries. Although the North’s first reaction was dismissal, the situation remains uncertain. Relations between the North Korean government and nearly every other major party — the United States, China, Japan, South Korea — have deteriorated over the last few months as it tests new and more technically capable missile systems. During the campaign, President Moon advocated a more collaborative approach in its dealings with its northern neighbor, so this stance is unsurprising. The fact that the North Korean government seems to have snubbed talks with South Korea is also not particularly surprising at this point; although North Korean leader Kim Jong-Un noted his wish to improve relations with the South, the multiple missiles launched and 4th and 5th nuclear tests belie that stated goal. Likely one of its chief concerns is the ongoing military exercises between South Korea and the United States, as well as the placement of a U.S. THAAD missile defense system in South Korea. Although President Moon has ordered a thorough “review” of the 4 that have yet to be deployed, the 2 that are already in place will not at this point be withdrawn by the Moon government.
Where this goes from here is uncertain, but look to see China’s position on talks in the Korean peninsula. Although China has not been able to influence every decision the North Korean government makes, it definitely has more influence than any other outside force on the government’s behavior.
OPEC parties to meet in Russia as oil markets remain on edge
This Monday, both OPEC and non-OPEC countries will meet in Saint Petersburg to discuss the ongoing quotas. Although the meeting is likely to end with a formal declaration that the quota continues, there have been strains on maintaining the quota both among OPEC and non-OPEC member states. Since January, when the newly agreed quota was implemented and the group of 13 OPEC and 11 non-OPEC members agreed to cut back daily output by nearly 2 million barrels, oil prices have fallen more than 10%.
U.S. shale production continues to rise, and two OPEC states exempted from the quotas, Libya and Nigeria, are significantly accelerating production. There are currently rumors that the two countries may be asked to cap production or Saudi Arabia may reduce production. All would be signs recognizing that the current quota does not appear to be working. At this point, the current quota is slated to last until March 2018, but if prices remain at around $45 a barrel, or if U.S. technologies are able to advance enough to sustain lower market prices, it would likely raise pressure for OPEC to alter its approach as OPEC and non-OPEC allies angle to defy quotas to boost overall revenues.
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 Senior Analyst Brian Daigle.
