The Week Ahead

The Week Ahead

Hillary Clinton and Donald Trump debate in New York. Argentina Central Bank presents inflation targets. Italy faces off with the EU following budget release. Latin American conference explores Brazilian outlook. Congress must pass funding bill before government shutdown. All in the Week Ahead.

Hillary Clinton and Donald Trump debate in New York

On Monday, Hofstra University will host the first of the three debates between former Secretary of State Hillary Clinton and Donald Trump ahead of the November 8 presidential election. It would not be surprising if this debate were to turn out to be the most watched political debate in U.S. history, and it has been seen as a potentially pivotal moment for the trajectory of both campaigns.

Previous debates have set the trajectory of past presidential candidates, both in success and failure: in one Ford-Carter debate, President Ford slipped in a debate when he said “there is no Soviet domination of Eastern Europe.” President Reagan dispelled concerns over his advanced age in a 1984 debate when he quipped, “I am not going to exploit, for political purposes, my opponent’s youth and inexperience.” And the 1960 Kennedy-Nixon debate, in which John F. Kennedy came across as polished while Richard Nixon looked nervous and sweaty (he was actually suffering from an infection) may have helped vault Kennedy to his close victory against Nixon in November.

The anticipation comes from a number of factors — first woman candidate of a major political party, first open race since 2008, etc. — but the majority is undoubtedly from the uncertainty of Donald Trump’s performance. Will he, for example, insult Secretary Clinton by calling her “crooked Hillary?” Will he let something slip that is perceived to be sexist or racially discriminatory? Will he basically be lauded for showing up and not doing either of those things and be viewed as the “winner” of the debate? All these questions are what will make this made-for-TV watching. There are likely to be many livestreaming sources for this debate, including this one.


Argentina Central Bank presents inflation targets

On Monday Argentine Central Bank President Federico Sturzenegger will present the 2017 inflation targets for South America’s largest economy. Inflation has been a particularly significant bugbear for the Argentine economy, and previous administrations have been criticized for systematically undercounting the actual level of inflation, which explains this chart’s seeming dramatic rise in Argentine inflation from October 2015 onward, despite the lack of any major macroeconomic developments that would naturally cause inflation to rise from 15% to 40% in less than a year. Bank President Sturzenegger has been consistently forthright in the position of the Argentine Central Bank in combatting inflation, even when it comes in conflict with the Macri administration.

The Macri administration, particularly Finance Minister Alfonso Prat-Gay, has called for inflation to fall to below the 20-25% rate, though this will be difficult for the Central Bank to enact such a swift change from 40% without significant shifts in interest rates, which are already quite high and have been slowly declining. A significant division between the central bank and administration could be problematic; businesses that are looking to go back to investing in Argentina are looking both to the central bank and the Macri government to convey the stability and strength of the Argentine economy, as well as its openness for business. Public disputes between the two entities could create market uncertainty as Argentine domestic wages, purchases of foreign intermediary goods, and the sale of goods in Argentina all hinge on the strength and predictability of the Argentine peso.


Italy faces off with the EU following budget release

On Tuesday, the Renzi government will release its 2017 budget forecast, including the likely Italian deficit for the year. The deal agreed upon between the European Commission and the Italian government expanded the budget flexibility for the Italian government in 2016 by up to 0.85% of GDP (in nominal 2015 GDP levels, that would be approximately $15 billion of extra leeway), extended to 2017.  That agreement had been predicated on the idea that the Italian government would restrict its financial situation in 2017, though notably the European Commission received no formal guarantee that the Italian government would commit to such belt-tightening.

Prime Minister Renzi’s likely hewing to the 0.85% leeway is likely to cause headaches in some European circles; undoubtedly the German government will worry that Italy is straying away from its Stability Pact guidelines and threatening the stability of the European economy. On the other side, countries like Greece, which have undertaken major burdens at the behest of the European Commission, will likely harshly criticize Italy’s behavior — or rather, the Commission’s behavior — due to the notion that the Italian government is receiving unduly generous terms that they themselves did not during their economic hardships. This tension, which has formed one of the most persistent fulcrum points of conflict within the European Union since the onset of the Great Recession, could easily be inflamed with Italy’s budget announcement.


Latin American conference explores Brazilian outlook

On Tuesday, Moody’s will hold its yearly Latin America conference in Sao Paolo, with a specific focus on Brazil’s corporate outlook, as well as Latin American credit trends. One of the challenges facing Brazil, perhaps more so than any other major economy, is the continued political instability wrought by the Petrobras scandal. The announcement this month not only that President Rousseff had been removed from power by the Senate, but that the Speaker of the House Eduardo Cunha had resigned his speakership due to his own investigation, that former President Lula was under his own investigation for accepting illegal gifts in the form of an expensive condo, and that his former finance minister Guido Mantega was arrested for corruption means that the virtually all major political parties have fallen under a major cloud of corruption.

While Brazilian politics has had a perception for corruption for some time, the independent Petrobras prosecutor Janot and a resilient judiciary have taken major steps to put teeth in Brazilian anti-corruption laws. This has had the major effect of destabilizing Brazil’s political system, preventing the cross-party collaboration required by Brazil’s multi-party system from enacting major economic reforms. Paralysis in the government can significantly impair Brazil’s ability to improve its corporate outlook and contributed, in part, to the previous lowering of Brazil’s credit rating because foreign agents will be unable to assess Brazil’s policy and economic environment if it is subject to sudden flux or if it remains persistently in stasis and unable to reform.


Congress must pass funding bill before government shutdown

This week, the U.S. Congress must pass a spending bill before funding runs out by September 30. Unsurprising to anyone who has followed the US Congress in recent years, the major funding bill has been bottled up by amendments, both ones included and ones that failed to be included. For a time, delays were caused by whether and how to include Zika virus funding for hard-hit Florida, which itself was controversial due to its restriction on funding for planned parenthood. Then the issue became flood relief for states like Louisiana which just suffered a major storm in the Baton Rouge area. Now the big issue is that the bill lacks funding for the Flint, Michigan water system, which recently became very controversial when it was revealed that thousands of residents had suffered from lead poisoning after the water source was shifted. Another headache for Republicans was an amendment they had placed in the bill, opposed by Democrats that would prohibit the Securities and Exchange Commission from requiring public companies to disclose their political spending.

The White House has already indicated it has emergency plans in place in the event of a government shutdown, and government agencies are likely to be informed of contingency plans this week in the event a stopgap bill is not passed. Although both parties could conceivably shoulder blame for allowing the shutdown to occur, in all likelihood, most blame will probably shift to the Republican party.


The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.

The Week Ahead is written by GRI analyst Brian Daigle.

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