The Week Ahead

The Week Ahead

UK enters Brexit talks as government coalition talks continue. Special election spotlight in U.S. state of Georgia as Trump’s Russia investigation builds. China stocks may enter broader global market. All in The Week Ahead.


UK enters Brexit talks as government coalition talks continue

This Monday, the United Kingdom is slated to formally begin Brexit talks, a two-year process negotiating the removal of the world’s fifth largest economy from the European Union. In the best of circumstances, this negotiation would be difficult: there are hundreds of thousands of British citizens working in the EU and EU citizens working in the UK; tens of thousands of laws that intertwine British and EU legal regulatory frameworks; immigration and visa standards; border and customs issues with the Republic of Ireland; and millions of tradeable goods that fall under the common customs market. With the most skilled negotiators and strongest of governments, securing a good deal for the UK would be almost impossible, as no EU country has a major incentive to treat Britain nicely with its own domestic Eurosceptic parties to worry about. And yet, the Conservative Party has emerged substantially weaker and in a more chaotic position following the election in what is likely a worst case scenario for them: not enough seats to form a majority but just enough to form a potential government with the controversial Northern Irish Democratic Unionist Party (DUP). On the first day of Brexit negotiations, one of the parties doesn’t even have a government. This is likely to substantially weaken Britain’s negotiating position and has already led to call that PM May soften. With as much infighting and discord as is almost certain to emerge, expect a lot of leaks, a painfully slow process, and continuing political fallout for the Conservative Party in elections to come.


Special election spotlight in U.S. state of Georgia as Trump’s Russia investigation builds

This Tuesday, the voters of Georgia’s 6th Congressional District will vote for the replacement for former Congressman Tom Price, who earlier this year left his seat to become the Secretary of Health and Human Services. The special election has already cost more than any House seat election ever, with more than $50 million spent by both sides to convince around half a million voters to support their own candidate over the other. The two candidates, Democrat Jon Ossoff and Republican Karen Handel, have taken numerous tacks to try to win over voters in an ostensibly very conservative district, with both being careful with how often and in what context they mention Trump. Regardless of the election result, which is seen as  a bellwether for the current administration, the heightened attention, particularly among Democrats, portends significant interest in the 2018 midterm Congressional elections.

Meanwhile on Capitol Hill, the Trump Russia investigation has deepened substantially: special investigator Robert Mueller has begun hiring top attorneys from an array of fields in the sprawling and expanding investigation over not only the Trump campaign’s ties to Russia, but now whether Trump himself may have obstructed justice in his firing of James Comey as FBI director. The maelstrom of scandal has continued to eat away at Congressional Republicans’ legislative calendar: Senate Republicans are trying to secretly craft an alternative to the Affordable Care Act and have it passed before July 4th, but the level of secrecy and rumors over what it may entail have thrown that timeline into doubt.


China stocks may enter broader global market

This Tuesday, American firm Morgan Stanley Capital International (MSCI) will determine whether to list a number of Chinese A-share stocks on the MSCI Emerging Markets index. The MSCI Emerging Markets Index includes stocks with a combined value of over $1.5 trillion and cross several major emerging market economies. The inclusion of these mainland Chinese stocks to the index would elevate the basket of items in the Index, and also the broader tradeability of these stocks on the NYSE and other major stock markets with MSCI operations. Should MSCI make the determination, this will represent one of the first opportunities for U.S. investors operating within the United States to buy and sell certain stocks that are currently only traded in mainland Chinese stock exchanges. This could also elevate the value of the Chinese yuan, as these stocks are denominated in yuan rather than dollars, euro, or yen. This will be the 4th attempt to have these stocks included in the index. In the last three failed attempts, MSCI cited the lack of access to mainland Chinese markets as its chief rationale for not including the shares. Some analysts have noted that even if MSCI brings these Chinese A-shares on to their index, those concerns have not abated: in an April note to investors, MSCI watered down its previous proposals for inclusion of these stocks, with the number of companies considered falling from over 400 to less than 170, and a likely weighting of the shares at only around 0.5%.

 

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.

This edition of The Week Ahead was written by GRI Analyst Brian Daigle.

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