Frank Kelly’s Geopolitical Week Ahead | February 25, 2024

U.S. federal government shutdown?  Aid for Ukraine, Israel and Taiwan?

This coming week, there will be a keen global focus on the U.S. House of Representatives – which is returning to work after a ten-day break – for two big reasons.

• First, the federal government will begin to shut down on March 1 unless the House can agree on a spending plan this week. Conservative Republicans oppose passing another short-term spending bill (as does Speaker of the House Michael Johnson (R-LA).
• Secondly, tied up in this ongoing political drama is the question of what the House will do about passing a critical aid package for Ukraine (and Israel and Taiwan) to help shore up the beleaguered nation’s defenses in the face of a mounting Russian counter-attack. The same group of conservative House Republicans are opposed to voting on the package unless there are more robust U.S. border security measures than those negotiated by Republican and Democratic senators earlier this month. As of this writing, a continued stalemate is likely on the U.S. budget and the Ukraine aid bill – which means a government shutdown is likely.

As uncertainty and concern grow over how to assist Ukraine, French President Emmanuel Macron has called an ad-hoc meeting of European Union (E.U.) leaders in Paris on Monday to shore up E.U. support for Ukraine going forward. What comes out of that meeting may impact the U.S. House to speed up consideration of the Ukraine aid package. The meeting also comes the day before The E.U. presents its new Defense Industrial Strategy (EDIS) and European Defense Investment Program (EDIP). Both were developed to help restock and acquire new defense equipment and technology.

G20 Finance Minister and Central Bank Governor meetings

Meanwhile, markets will watch the G20 Finance Minister and Central Bank Governor meetings in São Paul, Brazil, this week. Brazil is the chair of the G20 this year. But it is also a member of the BRICs, and Brazilian President Luiz Inácio Lula da Silva (“Lula”) is taking advantage of the meeting to gather the BRICS finance ministers and central bank governors together for their first-ever meeting just before the G20 meetings. 

World Trade Organization’s 13th Ministerial Conference

Another major global meeting this week is the 13th Ministerial Conference (MC13) of the World Trade Organization (WTO), held in Abu Dhabi. With all the continuous chatter about the death of globalization and free trade, the meeting outcomes will be closely watched to see just how true or false that chatter has been.

Global economic radar screen

Turning to the global economic radar screen, markets will be looking at the U.S. Federal Reserve’s (Fed) favorite inflation measure, the personal consumption expenditure (PCE), to give some new indication of when the Fed may begin to lower rates.

A number of Fed Governor speeches are scheduled this week, too, which may help guide markets a bit more on what to expect. 

In Asia, China releases PMI data, while Japan is scheduled to release consumer price index (CPI) measures data. In Europe, Germany and France are scheduled to release Purchasing Managers' Index (PMI)  prints and major labor market data releases from across the Eurozone.

U.S. Financial Regulatory Week Ahead

This coming week, Securities and Exchange Commission (SEC) Chair Gary Gensler may unveil is long-awaited and highly controversial proposed disclosure requirements for greenhouse gas emissions by corporations. The draft has been circulated to the other SEC Commissioners.  It was reported this past week some of the more ambitious elements of the proposal have been pulled but industry is still bracing for a tough set of proposals, which is likely to face an immediate federal court challenge. Among the reported changes, Gensler has dropped a requirement for U.S.-listed companies to disclose Scope 3 emissions which are emissions emitted by a company’s supply chain and the consumption of its products by customers.

Also this week, the New York Fed, in collaboration with the Bank of International Settlements (BIS) and the Federal Reserve Board, are hosting a two-day conference on counterparty risk. The event will be yet another effort by Federal Reserve Board Vice Chair Michael Barr to defend the Fed’s new bank capital rule. Banking supervisors from Europe as well as a number of senior industry executives are going to participate.

Looking back at last week, it was a fairly quiet week as it was shortened in Washington by the President’s Day holiday. But one major event of note was the Financial Stability Oversight Board (FSOC) meeting on Friday.  The readout from the meeting showed FSOC members were briefed on and had considerable discussions about the commercial real estate market and bank exposure. Clearly, this is growing concern for regulators.

Additionally, SEC Chair Gary Gensler briefed the Council Chair on the SEC’s regulatory initiatives, including on the securities settlement cycle, central clearing and dealer registration, short-term funding markets, and private fund reporting.