Weekly Risk Outlook

Weekly Risk Outlook

New U.S. consumer sentiment data to keep improving. Central Banks in Armenia and Turkey to deal with rouble and Fed policy. Second round of voting in Greek presidential elections. Tensions continue to mount between the U.S. and North Korea. Likely power change in Kashmir elections. All in this weeks GRI Weekly Risk Outlook.

U.S. Consumer Sentiment continues to improve

The latest United States consumer sentiment reading is scheduled to be released on Tuesday of this week. The last reading (released on December 12th) was a strong 93.8. That was the highest reading since January of 2007 and suggests consumers are finally starting to feel better about the state of the economy. The reading showed a 3.0 rise in the current conditions component and a strong 6.2 rise in the future expectations component, which has lagged behind.

With the dramatic fall in oil prices leaving experts sharply divided about what to expect for the U.S. economy and equity markets in the short to medium term, consumer sentiment data provides a critical look into how average households have been digesting the latest news. Consumer spending accounts for over 2/3rds of the American economy and consumer spending is a critical factor in forecasting corporate profits.

Investors and businesses will be eager to see if consumer sentiment can continue its upward trajectory or if it will start to level off.

Central Banks Meeting to deal with rouble’s decline and Fed policy

Central banks are set to meet in Armenia (Tuesday) and Turkey (Wednesday) to decide on national monetary policy.

The Turkish economy has had a particularly volatile year with interest rates nearly double what they were twelve months ago. The Turkish lira continues to hover near all time lows after being caught in an emerging market currency slide spurred by the collapse of the rouble in Russia, domestic political tensions in Turkey and the prospect of the US Fed raising rates next year.

Armenia has suffered from volatile GDP growth over the last 24 months and is also closely affected by turmoil in the Russian economy whose regional trade block (the Eurasian Economic Union) it was recently granted permission to join. Armenian interest rates have remained fairly steady over the past twelve months but have crept down from 7.75% to today’s 6.75%.

Both meetings should produce important insights for regional investors, especially those with assets in the local currency or in physical goods.

Greek Presidential Vote raises Eurozone membership uncertainty

Greece is in the middle of a dramatic and hectic presidential election with a second round voting scheduled for Tuesday and a final round on the 29th. If the parliament is unable to elect a new president then a general election will take place in February. A general election could throw the country back into chaos by injecting new uncertainty into ongoing talks between Greece and its creditors.

This is could potentially reopen fears about a Greek exit from the Eurozone if the new leadership is unable or unwilling to carryout previous international agreements aimed at helping Greece restructure its debt.

In a last minute effort to stave off defeat, Prime Minister Samaras has offered a host of new concessions, but it remains unclear if this will be enough to hand victory to his party’s presidential candidate. The turmoil also coincides with new allegations of corruption and bribery against Mr. Samaras and opinion polling showing that anti-bailout leftists would win if a general election were held tomorrow.

U.S.-North Korean tensions grows

North Korea seems to have lost all Internet access over the weekend. While the United States has kept tight-lipped, many observers believe the outage is part of an American led attack in response to the recent Sony hack.

While, we do not anticipate the emergence of a significant conflict between the two nations, North Korea is famously enigmatic and could be motivated to lash out against the U.S., South Korea, or other American interests in East Asia.

It is unlikely continued tension would have a direct impact on regional businesses or economic interests, however equity markets are easily spooked and investors should monitor the situation closely. A dramatic North Korea response has the potential to create a sharp short-term decline in equity indices.

Power change likely after elections in Kashmir

Election results in Kashmir are set to be released on Tuesday. Observers see a change in power as inevitable, but uncertainty remains about the composition of the new government. The BJP, which recently took control of India’s national parliament, is hoping to make inroads in a region it has long been absent from. Pakistan contends that Kashmir was stolen by India during the country’s partition in 1947 and the region has been a hotbed of unrest ever since.

The issue of Kashmir has long been a rallying cry for militants in Pakistan and an election result seen as being pro-BJP or pro-Indian has the potential to fuel unrest. We don’t anticipate the results leading a to widespread conflict with severe economic consequences, however the election’s aftermath should be monitored closely for local disturbances and the more remote possibility of spiraling regional conflict.

The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions impact economic outcomes.

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