Pyeongchang Olympics represent opportunity for dialogue. Sweden Central Bank looks at interest rates. Market gyrations likely to continue. All in The Week Ahead.
SOUTH KOREA: Pyeongchang Olympics represent opportunity for North/South discussions
- This week, the Pyeongchang Olympics will include alpine skiing, biathlon, cross-country, curling, figure skating, and freestyle skiing, among many other events. Meanwhile, behind the scenes, diplomats and officials between the North and South Korean governments are likely to discuss continued logistics for the combined Korean teams. The symbolism of the combined team and the invitation by Kim Jung Un’s sister for the President of South Korea to visit Pyeongyang has renewed hopes at a possible rapprochement (or at least dialogue) between the two nations.
- The whipsaw of South Korea’s presidency between more and less conciliatory approaches to the North Korea questions has led to an absence of progress on the issue, and the silence or bellicosity of major regional players has helped to create a vacuum in which North Korea’s government has engaged in increasingly reckless behavior. The main question regarding these recent overtures is whether they are being offered in good faith by the North Korean government or whether this is simply a measure to stall for time as the regime works on refining its weapons systems.
GRI Take: The difficulty of the international situation, particularly the wide divergence between the United States and China on resolving the Korea situation, makes it unlikely that any long-lasting changes will occur as a result of the Games. Nevertheless, smaller-scale endeavors (like another family unification event) are possible.
SWEDEN: Central Bank likely to maintain interest rates
- This Wednesday, the Swedish central bank Riksbank will meet to determine interest rates. Held at -0.5 for over a year now, the Riksbank has indicated it intends to keep the interest rate held at that level for the time being in part to get inflation to around 2% (the inflation rate has slowed from December 2015 to January 2017 before falling down to 1.4%).
- Despite being one of the few central banks in the world to still keep its interest rates negative, the inflation rate actually fell in January for Scandinavia’s largest economy, leading to questions over how long the central bank will maintain its rates at the current level.
- In its December meeting, the Riksbank director indicated the bank’s intent to keep interest rates stable before slowing raising them in the summer of 2018. However, with inflation now slightly declining, the central bank may alter course and signal a change in interest rates later in the year.
GRI Take: With Swedish growth rates declining after a jump early last year, and unemployment rates above those of Denmark and neighboring Norway, the Swedish central bank is likely to maintain a relatively conservative approach and may indicate its intent to hold off on a rate increase in the summer or at least provide benchmarks (like Sweden returning to 2% inflation) before it raises rates.
FINANCE: Market gyration likely to continue as tax cuts and budget deal fail to boost markets
- Last week, the Dow Jones Industrial Average (DJIA), a composite of the largest U.S. firms ranging from Home Depot to Apple, twice fell more than a thousand points in a single day. Over a less than 2-week period, the Dow has fallen nearly 12%, with some of the worst performance since the onset of the Great Recession. While some of this market movement is seen as a natural correction to what was viewed as too high (peaking at over 26,000 points, rising over 6,000 points in less than 2 years), the swings in the market have come from a number of factors that are likely to continue and rattle both the U.S. and global markets.
- First, concerns that the Federal Reserve has moved up a rise in interest rates from fall to the summer has led to sell-offs. The new Fed chairman, Jerome Powell, does not appear to have the same confidence from the market that former chairs Janet Yellen and Ben Bernanke had, leading to somewhat a crisis of confidence from the stock market.
- Additionally, the introduction of a massive tax cut bill as well as the recent agreement of a 2-year budget deal increasing defense and domestic spending, do not appear to have had the economy juicing effects some in the administration and Congress might have thought. This may be due to the fact that the U.S. economy is already performing at strong growth and unemployment levels, but also possibly due to the fact that the tax cut bill incentivized buy-backs from companies and was largely viewed as beneficial to large firms and the wealthy at the expense of the middle class.
GRI Take: The chaos from Washington and continued scandal from the White House has started to spook investors who will believe among other things that the likelihood of a Democratic sweep this November election cycle will halt any market-friendly moves for the duration of this administration. With the two biggest economic boosters failing to ultimately bolster the stock market, one should expect fits and starts throughout the market, but mostly the beginnings of a market decline in the U.S. and possibly abroad.
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The post The Week Ahead: 11 – 17 February 2018 appeared first on Global Risk Insights.