Weekly Risk Outlook

Weekly Risk Outlook

Metals companies meet to discuss mineral markets. US Senate prepares to vote on several bills and nominations. World Bank and IMF release bellwether economic data. Bank of Japan releases monetary policy meeting minutes. ECB considers continued commitment to interest rates. All this in GRI’s Weekly Risk Outlook.

Copper Conference will serve as another Commodity Bellwether

On Monday Santiago, Chile will host the 14th annual World Copper Conference. Speakers include representatives from major metals and mining companies like Rio Tinto, as well as government officials from copper-producing countries and metals trading houses like the London Metal Exchange.

Like a number of commodities (such as oil in the Middle East and rice in East Asia), copper production is regionally concentrated. Of the top 10 copper producers in the world, five are in the Americas: Chile (by far the largest producer), Peru, the United States, Mexico and Canada.

Chile in particular stands to gain (or lose) from changes in copper prices, as the country is increasingly affected by the copper market with domestic economic, political, and geographic upheavals to follow.

Chile’s copper production – which accounts for nearly 1/3 of all global copper supply – has been affected both by droughts and floods, and corruption scandals have frozen the political environment and the Bachelet presidency.

Copper prices, which have fluctuated significantly in the past few months, are likely to rise in the near-future due to the twin environmental and political pressures on Chile’s economy.

Slow growth in China has also increased pessimism across the commodities sectors, affecting everything from cocoa and soybeans to steel and copper.

U.S. Senate to take up several controversial bills and nominations

Following a two-week Easter/Passover recess, the U.S. Senate is expected to take up several pieces of legislation, ranging from global trade policy to delicate nuclear negotiations.

On Tuesday, Foreign Relations Chairman Bob Corker (R-TN) is expected to introduce his bill to mandate Congressional review of the Iran-P5+1 deal, slated for completion June 30. Although President Obama has vowed to veto the bill, it may have sufficient support to overcome a presidential veto.

On Tuesday or Wednesday, Senate Finance Chairman Orrin Hatch may introduce to legislation to approve trade promotion authority for President Obama to successfully conclude the TPP free trade negotiations.

Still uncertain is the support of Ranking Member Wyden (D-OR), whose agreement may be decisive in bringing moderate Democrats into the fold.

Additionally, the Senate may hold a vote on confirming Attorney General nominee Loretta Lynch to replace retiring AG Eric Holder.  Her confirmation process has been controversial, and the length of time it has taken to confirm her has been strongly criticized by Democrats.

World Bank and IMF releases presage multi-stakeholder meetings

On Tuesday the World Bank will release its World Economic Outlook, which will be followed on Wednesday with the IMF’s Global Financial Stability Report.

The two reports should provide an indication of the macroeconomic and political risk trends both the World Bank and IMF project for the developed and developing economies, and will serve as the first event in the 2015 Spring Meetings between the IMF and World Bank.

In addition, IMF Director Christine Lagarde is expected to deliver a speech to inaugurate the meeting, and will focus on efforts by the Federal Reserve to raise interest rates as well as discuss growth prospects in Europe.

Lagarde has also warned that the world may be entering into what she termed a “mediocre normal,” which could stagnate growth potential in the short and medium term.

The events from the World Bank and IMF meetings will touch nearly every major macroeconomic issues covering the world today: the impact of oil prices on growth, global interest rate trends, currency and inflation policy, climate change, and agriculture.

The two institutions have already begun to illustrate some changes in policy preceding the meetings: the IMF recently endorsed working with Islamic financial institutions and the World Bank has indicated its support for the China-led Asian Infrastructure and Investment Bank.

Bank of Japan Releases Minutes of Monetary Policy Meeting

On Monday, Bank of Japan Governor Haruhiko Kuroda will release the minutes of the Bank of Japan’s March monetary policy meeting.

Kuroda suggested in the March meeting that prices in Japan may temporarily fall again this year, leading to significant questions regarding Japan’s recent quasi-quantitative easing measures.

Deputy Hiroshi Nakaso recently indicated in an interview with Reuters that the bank will not be likely to expand its stimulus program this month, stating that a cut in inflation forecasts (which will likely occur given falling oil costs) in and of itself would not be sufficient to expand the country’s monetary easing policy.

This statement was viewed as a signal to markets that Nakaso largely agrees with Governor Kuroda’s assessment that Japanese inflation will hit 2% within the year, although Kuroda has been criticized for supporting a goal viewed by many as unrealistic while appearing increasingly out of step with the Abe administration.

Governor Kuroda will give a speech after the release of the March minutes at the quarterly meeting of the central bank’s regional branch managers, and will also deliver remarks regarding the release of the Bank’s report on regional economies.

European Central Bank likely to stay the course on interest rates

As the European Central Bank struggles to form a comprehensive agreement with Greece to avoid fiscal and monetary calamity, Wednesday will see the European Central Bank governors meeting to discuss interest rates.

It appears likely that the ECB will maintain current rates in anticipation that the ECB’s expansionary quantitative easing will take hold. Although the QE is leading to significant European stock market growth, and has brought the euro down to near-parity with the dollar, ECB governors appear less than convinced that growth forecasts of 1.5% will reflect reality.

Concerns with a possible uptick in oil prices weighed heavily on the debate, and uncertainty regarding the ultimate effect of an Iran nuclear deal with the P5+1 countries will likely extend these debates at least through the end of June, when the deal is expected to be signed.

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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