China trade figures show slide. US CPI data to weigh on Fed October meeting. EU officials discuss refugees, Brexit. Democrats hold primary debate. All in the Weekly Risk Outlook.
China Import and Export Figures Likely to Show Continuing Slide
On Tuesday, the Chinese government will release figures regarding imports to and exports from the world’s second largest economy for the month of September.
Most analysts believe the figures will reveal a further decline in trade to and from China, which may spur the government to act more aggressively to stimulate growth.
However, previous decisions by the Chinese government to intervene in domestic markets have resulted in mixed success and the lack of confidence in market stability continues to plague the country.
The weaker economic outlook in China has prompted reductions in global economic prospects, as the IMF last week illustrated when it downgraded global growth forecasts from 3.3% to 3.1%.
Worsening economic data are compounded by sensitive international issues. The United States has indicated that it will not limit its naval ships from coming close to disputed islands China has controversially claimed as its own territory.
On Wednesday, China will release further economic indicators with September’s inflation figures. CPI figures are may show a slight uptick from August’s 2 % year-on-year, but inflation below the 2 % mark is nevertheless possible given falling trade figures, stagnating growth and market turmoil.
EU Officials Discuss Refugees and Brexit
On Thursday, leaders from the European Union will meet to discuss the region’s influx of refugees from Syria.
EU member states have taken decidedly different approaches to the crisis, with some countries accepting significant numbers of refugees (Germany), others funneling refugees into other EU member states (Hungary), erecting border controls (Netherlands), and sending aid to other countries accepting Syrian refugees (UK). Most have pursued some combination of those options.
Unifying these different approaches has been one of the most difficult geopolitical and economic tasks the EU has undertaken, and has exposed a deep schism between EU member states.
Last week, German Chancellor Angela Merkel criticized her Eastern European counterparts in a closed door session of the European People’s Party (EPP), noting that historically Eastern Europe has had its own refugee crises and that unity now would be helpful in resolving the crisis.
Also this week, member states will be informed of the ongoing negotiations between the UK and EU regarding its “renegotiation” of EU membership, which could cover some of the historic pillars of the EU (notably the free movement of people).
It is uncertain at this point how far the UK will get in its negotiations, particularly considering that Prime Minister Cameron has vowed to hold an in/out EU referendum by the end of 2017.
If the referendum is held regardless of the outcome of negotiations, EU leaders (and member state leaders briefed on negotiations) would be hard-pressed to sacrifice key elements of the European project, as doing so would not be inherently successful in maintaining the UK’s EU membership.
U.S. Labor Department CPI data Likely to Weigh on Fed Decision
On Thursday, the Labor Department will release its consumer price index data for the month of September, and the reduction in the price of gas has likely led consumer prices to have fallen overall.
This will not be good news for the Federal Reserve, which has repeatedly stressed intentions to raise interest rates this year, but has struggled to find the sweet spot in which to do so.
While the Federal Reserve has noted that 2% was the target inflation rate for the U.S. economy before the Fed starts raising interest rates, it has been a long time since the U.S. saw 2% inflation.
When the Fed was considering raising interest rates in September, many market observers noted that the Fed knew that inflation would not hit 2% by September, but would press on regardless of the inflation rate.
However, international considerations came into play when the Fed chose not to raise interest rates, and this, combined with falling inflation figures, could cause the Fed to delay a hike to the end of the year, or possibly into 2016.
Either way, weaker inflation data will send a fairly strong indication to the Fed that the October meeting (in 2 weeks) is not be the most opportune time to raise interest rates.
Democrats Hold First Presidential Primary Debate
On Tuesday, the first Democratic debate for the 2016 presidential election will be held in Las Vegas, Nevada.
Participants will include frontrunner Hillary Clinton, progressive favorite Senator Bernie Sanders, as well as former Maryland Governor Martin O’Malley, former Senator Jim Webb and former Governor Lincoln Chafee.
Notably absent from that list is Vice President Joe Biden, who has received significant pressure to enter the contest.
Biden has proven remarkably resistant to announcing his intentions, and his entry into the race this late in the cycle could create disarray in the Democratic primary process.
The moderators will in all likelihood seek to pursue divisions between the candidates, particularly between Clinton and Sanders.
As a result, gun control (with Clinton favoring a more liberal approach), banking regulations and trade policy (with Sanders’ more progressive views), and the legacy of the Obama administration will all likely be discussed.
Both Sanders and Clinton have generally avoided attacking one another directly, though this will be more difficult when the two are asked to respond to comments made and positions taken.
This debate will serve as Clinton’s opportunity to staunch the loss of support from her camp to Sanders, and Sanders will have a prime opportunity to spread his name recognition and present himself as the leftist, policy-focused alternative to the center-left Clinton.
Given the success of Jeremy Corbyn in the UK Labour Party elections as the leftist, policy-focused alternative to more traditional candidates, such a path would not be unprecedented.
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 was produced by GRI analyst Brian Daigle.
