Weekly Risk Outlook

Weekly Risk Outlook

Nuclear summit brings leaders to Washington D.C. Mixed data on U.S. economy. Fed Reserve chair speaks. U.S. unemployment might fall. China releases manufacturing data. All in the Weekly Risk Outlook.

Nuclear security summit brings world leaders to Washington D.C.

On Thursday, President Obama will meet with world officials to discuss nuclear terrorism and counter-terrorism initiatives. The meeting will involve Chinese President Xi Jinping, Italian Prime Minister Matteo Renzi, and Turkish President Recep Erdogan, among others.

Prime Minister Renzi and President Erdogan will also use the summit to make multiple visits across the United States for various bilateral initiatives, with Prime Minister Renzi visiting Nevada, Colorado, and Harvard University.

Following the Brussels attack, leaders and the general public have become increasingly concerned that ISIL may have nuclear aspirations, both in terms of acquiring nuclear materials as well as committing terrorist attacks on nuclear facilities. This has led to a greater sense of urgency ahead of the Nuclear Security Summit, and may prompt more concrete initiatives to share intelligence between countries to counter the threat of nuclear terrorism, particularly within the EU.

The summit will also be an opportunity for the leaders of the United States and China to discuss bilateral ties, as the two are slated to meet on the sidelines of the summit.

Some U.S.-China experts have suggested this may be an opportunity for the Chinese government to present an updated proposal for the U.S.-China bilateral investment treaty, though it appears equally likely that the United States will note its own concerns regarding China’s more aggressive measures in the South China Sea.


Economic data may show mixed signals on the U.S. economy

On Monday, the Department of Commerce will release key economic figures for the month of March, with analysts forecasting reduced growth for both personal spending and incomes for American consumers.

The reduction in income may be somewhat surprising, as the growth of the U.S. economy suggests that companies would be hiring new workers and raising wages for existing workers. The fall in personal spending, however, may not be as surprising.

Consumer confidence in the U.S. economy fell from February to March as well as year-on-year (the University of Michigan Survey of Consumers ranked consumer confidence in March at 90.0 from 91.7 a month earlier), and is likely due to both reduced expectations of the performance of the economy overall as well as the expectation that gas prices will rise this year.

Additionally, it is plausible that the U.S. presidential election has begun to weigh on consumers in two significant ways. First, markets appear to be increasingly concerned that a presidency led by Ted Cruz or Donald Trump could pose significant economic risks given the lack of policy predictability on the part of the candidates, which could spook consumers.

On the other hand, and slightly less subtly, the Republican campaigns themselves have included consistent remarks that the U.S. economy is doing exceptionally poorly. Although these comments should be viewed through a considerable political lens, and many would dismiss such comments as electoral bluster, persistent messages conveying a poor economy may begin to sink in.


Federal Reserve chair speaks as Fed backs away from rate hikes

On Tuesday, U.S. Federal Reserve Chair Janet Yellen will speak at the Economic Club of New York regarding the U.S. economy. San Francisco Fed President John Williams will deliver similar remarks at a National University of Singapore conference “Steering the U.S. Economy Through Turbulent Seas”.

Yellen’s comments will be followed by questions from former vice chairman of the Board of Governors of the Federal Reserve Alan Blinder and Columbia Business School Dean Glenn Hubbard.

The March decision (which did not involve a rate hike) noted that U.S. economic growth and inflation projections had been cut and many now believe that the number of rate hikes this year is closer to 2 or even zero.

This hesitation is likely in large part due to the reduction in inflation projections from 1.6% to 1.2% (the Fed’s target is 2%), considering unemployment levels suggest that the economy is rebounding.

Another consideration the Fed may make is how their actions will be perceived in a highly volatile election year. The U.S. presidential elections of 1896, 1920, 1932, and 1972 all were heavily influenced by significant decisions by the Federal Reserve on interest rates during the election year.

Although the rate decisions (with the exception of 1972) were far more significant than anything the Federal Reserve has suggested for this year, anything that draws attention to the Federal Reserve in a political context is something the Fed would likely wish to avoid (particularly as scrutiny regarding the perceived opacity of its decisions has risen among populist political figures in both parties).

This may help to stay the hand of Yellen throughout the spring and summer, with decisions to raise rates becoming increasingly costly the closer they get to November. That being said, an interest rate hike, if the board becomes convinced that one is necessary, would likely be sooner rather than later.


Despite U.S. consumer concerns, the unemployment rate probably fell this month

On Friday, the Labor Department will release unemployment figures for the U.S. labor market for the month of March. Market watchers believe that the economy added around 200,000 jobs in March and kept the unemployment rate to 4.9%.

These positive figures, highlighting a steady and improving U.S. economy, will also be followed by the Institute for Supply Management’s release of manufacturing figures, also slated to show a slight improvement.

The recent weakening of the dollar against major currencies over the month probably improved the capacity of U.S. companies to export to other countries, boosting both manufacturing and employment.

Any addition of jobs and/or fall in unemployment would be a boon for the Obama administration, which has sought both to highlight its success in serving as a responsible steward of the nation’s economy for the last 7 years, and also to preserve those successes by ensuring a Democratic candidate succeeds the president in the next administration.

Two of the largest indicators of support for an incumbent party heading into an election cycle have been the level of popular support for the incumbent office-holder and perceptions of the strength of the economy, though the latter is somewhat complex.


China Releases Manufacturing Data, May Show a Slight Shift Upward

On Friday, China will release its official manufacturing PMI (purchasing managers index) and current forecasts suggest it will improve for March. It is uncertain at this point, though, whether the rise will meet market expectations.

Any rise that fails to fulfil such expectations (or perhaps a fall this month) could withdraw some of the market goodwill that followed the National People’s Congress concluded two weeks ago and suggest the economy may be in for a rocky year.

Such data would coincide with the reduced growth forecasts for the country (around 6.5%), slowing industrial output and slow export growth, coupled with significant concerns that labor unrest could cause the Chinese government to hold off on some of the tough reforms necessary to shift the country from a goods-based to services-based economy.

This unrest could be particularly severe in the coal and steel industries, which face a multitude of concerns: reduced economic competitiveness from weakening demand abroad, reduced competitiveness from an emissions standpoint (and rising urban outrage at high levels of smog and other pollution), and reduced competitiveness from rising wages relative to other developing economies in the region.


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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