GRI’s Weekly Risk Outlook

GRI’s Weekly Risk Outlook

Deadlines loom with Iran nuclear talks. China releases PMI data. U.S. prepares to release unemployment figures. Greece releases reform proposals. All in the Weekly Risk Outlook.

Deadline for Iran nuclear deal with P5+1 powers

Negotiations with Iranian Foreign Minister Mohammad Zarif and U.S. Secretary of State John Kerry (in addition to the foreign ministers of China, the Russian Federation, France, the UK, and Germany) face a self-imposed March 31 deadline Tuesday to complete the framework for a nuclear deal that would see the reduction of Western sanctions in exchange for an Iranian scale back of its nuclear program.

Divisions have emerged between Western powers regarding the scope and framework of a deal, with French foreign minister Laurent Fabius considered to maintain a more hawkish line towards the negotiations than German and U.S. counterparts.

The six powers are insisting that sanctions only be suspended rather than lifted, and the actual text of the comprehensive nuclear agreement is not expected until June 30th.

Differing reports from negotiators and diplomatic officials speaking on conditions of anonymity have expressed starkly different views of the likely result of talks. Some have indicated that all parties are likely to reach a deal, while others have indicated that the deal would remain a skeleton agreement given the wide divergence in policy stances between the Iranian and P5+1 negotiators, as well as within the P5+1.

Whether a deal will emerge is still a very open question, even this close to the deadline.

Chinese PMI figures released

China will release its purchasing manufacturing index (PMI) on Wednesday, after recently falling below the 50.0 dividing line between expansion and protraction to 49.2.

Although the data may show an improvement from earlier contraction figures, this figure will likely have been bolstered by increased purchasing from a traditionally later Lunar New Year and the subsequent shopping that followed.

Slowing growth has increasingly drawn concern from Chinese and international observers. In early March at the People’s National Congress, Premier Li Keqiang announced that the government would lower 2015 growth targets from 7.5% to 7%.

China (like many other countries) recently lowered interest rates as well as its reserve requirement ratio in February to spur growth and to help boost production.

China has a strong national interest in promoting a strong yuan as a global currency, particularly now given increased interest from European countries in joining the China-led Asian Infrastructure and Investment Bank (AIIB).

U.S. unemployment figures to be released Good Friday

The Treasury Department will release unemployment figures on Friday. Early estimates suggest a slower employment growth rate may occur to the tune of approximately 250,000 added jobs, in contrast to February’s strong 300,000 employment addition.

Effects on the global markets should be fairly limited, as the release of unemployment figures will hit empty trading floors in Europe for Good Friday holidays (Good Friday is not a nationally recognized U.S. holiday, though most trading houses will be closed).

These figures will cap a series of U.S. data releases: Monday will have home sales and February consumer spending, consumer confidence levels will be released on Tuesday, vehicle sales on Wednesday and international February trade figures will be issued on Thursday.

Ultimately the larger question for global markets will be whether this contributes to the ongoing narrative of a possible U.S. interest rate hike this year.

Jeffrey Lacker, President of the Federal Reserve Bank of Richmond indicated in early March that, “June would strike me as the leading candidate for liftoff.”

Federal Reserve Chair Janet Yellen stated last Friday that she believes “conditions may warrant an increase in the federal funds rate sometime this year” in a gradual (though not predictable) path. “Policy,” she noted, “could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation.”

Greece to release new reform proposals on Monday

On Monday, the Greek Finance Ministry is expected to submit its reform commitments to Eurozone finance ministers for approval on April 1st, following the failure of reform suggestions to make any headway two weeks ago.

German government officials, as well as other major Eurozone players, are concerned that the newest proposals will fail to deliver, and have indicated that major reforms are necessary to secure billions in emergency bank aid.

Larger Eurozone concerns have begun to hang over negotiations between the Greek government and the EU: German rates of return for 2-year bonds yielded -.256 last Friday, and there are increased concerns that investors have begun to shift away from the Eurozone in favor of US treasury bills, despite Mario Draghi’s quasi quantitative easing measures.

In spite of the increasingly dire situation for the Greek economy, there appears so far to be little appetite from the Greek government to offer the meaningful reforms demanded by other Eurozone governments, as the Greek government responded to the last failed offer with the possibility of new elections.

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 affect economic outcomes. 

The Weekly Risk Outlook is written by GRI analyst Brian Daigle. 

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