Geopolitical risks always persist, but currently, they are directly impacting economic viability. What are the likely outcomes?
While the focus should be on the G-20, the US and China will likely take center stage. Hopes were slashed last week, however, as tensions rose between Vice President Pence and President Xi Jinping. A deal between the two nations would prevent a 25% tariff on $200B in goods effective January 1st. No one knows if a deal will come from the meeting, but events last week made it less likely.
An exit deal has been reached between Prime Minister May and the European Union (EU). The deal in question prevents a hard border for Northern Ireland, a sticking point for the UK. While this deal has taken much energy to execute, it may be for nothing. The UK parliament still needs to pass the deal. Currently May does not have close to the number of votes needed to get the deal through. The Sterling strengthened on the news of the deal but should struggle as the battle with parliament ensues. Should parliament not pass the Brexit Deal, the issue will likely become a national referendum.
Last week, the EU rejected the proposed Italian Budget for 2019. They have started the process of fining them 0.2% of GDP. Italy would need to pass a budget that is in line with EU rules to avoid the fine. It appears likely that Italy will make some revisions and resubmit their 2019 budget.
The Core Consumer Price Index (CPI) for Japan sits at 1.0% (an inflation proxy). This may seem low; however, Japan has struggled to get to this point. There are mounting concerns,with global growth slowing, that inflation may not get much better. Additionally, Core CPI in Japan includes fuel costs. As oil prices fall, inflation does not stand much of a chance to remain strong.
All eyes will be on the G-20 meeting late this week. Also, the parliamentary vote for Brexit is set for December 11, 2018. Expect volatility to remain over the next few weeks as these geopolitical event outcomes dominate headlines.
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