Weekly Risk Outlook

Weekly Risk Outlook

Netanyahu and Obama meet to defuse tensions. IEA publishes energy forecasts. EU and African leaders discuss migrant crisis. FOMC members on monetary outlook. Central Banks in Chile, Peru set rates. All this in the Weekly Risk Outlook.

Israel and US Leaders Meet to Defuse Tensions

On Monday, Israeli Prime Minister Benjamin Netanyahu will meet with U.S. President Obama in his first White House visit since October 2014.

The relationship between the two allies has been rocked by sharp divisions over settlement policies and the Iran nuclear deal between Iran and the P5 and Germany.

The visit will likely serve as an attempt to mend fences, particularly as the Iran nuclear deal has already entered its implementation phase, removing a key sticking point between the two administrations.

The discussions are likely to include increasing military aid from the United States to Israel, but may also touch on more delicate subjects; in addition to implementation of the Iran deal, the appointment of Ran Baratz as chief spokesman for the Netanyahu (to be confirmed by the cabinet) has drawn criticism for Baratz’ comments accusing President Obama of anti-Semitism.

The extent to which the U.S. and Israel will be able to patch things up during this 4-day visit is unclear. The two sides will likely continue to disagree on the parameters of the Iran nuclear agreement and growing concern from the United States over the Palestinian-Israeli conflict.

One potential area of collaboration could be the extension of a 10-year defense agreement set to expire in 2018, which may lead to a boost in military assistance from the United States to Israel.


International Energy Agency Publishes Global Energy Forecasts

On Tuesday, the International Energy Agency (IEA) will release its yearly World Energy Outlook.

The report will discuss both the economic impact of the steep decline in oil prices since late 2014 as well as provide a rough outlook for where oil prices may be headed.

The Outlook is also expected to explore developments in India’s energy sector, and provide an expansive analysis of renewable energy developments in anticipation of the COP21 talks in Paris.

The IEA has already published outlooks looking at specific sectors and regions, including the Southeast Asia Energy Outlook and the World Energy Outlook Special Briefing for COP21.

The projections for oil prices will likely be the key takeaway from the report, particularly as oil-dependent economies from Russia to Canada continue to be pummelled by low prices and demand is slowing in major developing economies, especially China, but increasingly Brazil as well.


European and African Leaders Discuss Migrant Crisis

On Wednesday, leaders from the European Union and thirty-five African states will meet in Valletta, Malta for a two-day summit exploring policy options to respond to the recent influx of migrants from Northern Africa and the Middle East to Europe.

The summit will be followed on Thursday with an internal meeting of the EU leadership to discuss migration policy.

Given the pressure on European leaders from the influx of migrants and refugees a breakthrough deal on assistance in countries of origin may emerge from the meeting. Yet such optimism has its limits as previous summits have largely failed to resolve the large issue.

Resolving the issue will be particularly difficult as the major EU countries supporting a more migrant-friendly approach have gone through political setbacks recently.

Last week, German Chancellor Angela Merkel suffered a defeat when her plan to establish transit zones to process the migrants coming to Germany was brought down by the Social Democrats who denounced the zones as “detention camps.”

Sweden, another major backer of housing refugees, also stumbled when the Swedish Foreign Minister Margot Wallström noted that the country is “facing collapse” because of the large rise in refugees to the country. Sweden’s Migration Minister said that the country can no longer guarantee asylum seekers will be able to find accommodation in the country, which has led to a war of words with Denmark.

The developments in these countries have provided significant rhetorical ammunition for those who oppose a more conciliatory approach to the refugees coming from Syria and elsewhere. Without a strong negotiating position of the countries supporting an accepting position for asylum seekers, it is difficult to see how a decisive deal could emerge from talks with African leadership.


Trio of FOMC Members Discuss Monetary Policy

On Thursday, Federal Reserve Bank of Chicago President Charles Evans will discuss U.S. monetary policy and the economic outlook in Chicago, followed by New York Federal Reserve Bank President William Dudley doing the same in New York.

The following day, Cleveland Federal Reserve Bank President Loretta Mester will also discuss growth and the U.S. economy.

Although Mester is no longer a member of the Federal Open Market Committee (FOMC), the three range the spectrum on dovish-hawkish views on monetary policy (Mester more hawkish, Evans and Dudley viewed as more dovish), meaning a more unified indication of the direction of the economy from the three could be strongly indicative of the potential for a rate hike in December.

Following last week’s strong job numbers (the U.S. economy added 271,000 jobs in October, more than double the disappointing September tally) and Fed Chair Janet Yellen’s comments last week in a Congressional testimony that an interest rate hike in December is a “live possibility“, this trio of Federal Bank presidents speaking within a few hours of each other may provide further evidence that a December rate hike may be imminent.

The Fed has been criticized recently for somewhat cloudy signals, and there have been indications that Chair Yellen is working to improve the Fed’s public communication.

Should the Federal Reserve choose to raise interest rates in the December meeting, it is likely that several central banks around the world will scramble to respond to a strengthening US economy where investing becomes more profitable.


Central Banks in Chile and Peru Set Interest Rates, as Both Ponder a Possible U.S. Rate Hike

Among the many central banks that will ponder the ramifications of a December U.S. interest rate hike are the commodity-rich South American countries Peru and Chile.

On Thursday, the respective central banks of the two countries will set interest rates for the month of November.

Although the economy of Latin America as a whole appears to be slowing down as the commodities boom has come to a close and China’s growth has continued to fall, Peru and Chile both thus far have been able to keep their growth rates in check.

Chile responded last month to increasing inflation risks by raising its interest rate to 3.25%, and markets appear to coalesce around a possible increase again Thursday, particularly as growth rates were stronger than expected in September and the bank is trying to figure out how to effectively balance forces.

Peru, which raised its own interest rates in September to 3.5%, could surprise with another interest rate hike in November, particularly if the Peruvian Central Bank determines that a US rate hike is likely in December.

Market analysts were caught by surprise when Peru raised rates in September, so it is uncertain whether the central bank will raise interest rates or what market impact this will have.

Regardless, the moves by Chile and Peru as well as Brazil, Colombia, and Venezuela (though the last has many other issues to resolve), seem to serve as an effort to effectively respond to a draw-down in commodity prices amid increasingly restricted levers to spur growth and economic development while maintaining market stability.


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.

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