Here are some critical issues to watch around the globe over the coming month:

North America

The US government has reopened after a partial government shutdown that lasted 35 days. The Trump Administration has publicly stated that they would prefer to avoid another government shutdown, but the administration has refused to rule anything out. It remains to be seen how this piece of political theater will play out, but if President Trump moves forward with emergency plans to build the wall along the southern border the consequences could be far-ranging and long felt. Markets for now have dismissed the effects but another shutdown may increase volatility and risks for equities.

The latest episode in the Mueller investigation saw the arrest of a political strategist and advisor to the president–Roger Stone. Stone was charged with obstruction of justice, witness tampering and making false statements. The submission of the Mueller report may be accompanied by significant higher political and financial risks where portfolio hedging might be necessary.

The US is entering a new round of talks on January 30th and 31st to resolve the trade issues with China by the end of the 90-day truce that began on January 1st. The move comes after China has taken its case to the WTO to challenge the US tariffs on Chinese goods. All of this is happening as the US has levied charges against the Chinese technology giant Huawei. The US has said that Huawei had misled the United States government about its business in Iran, obstructed a criminal investigation and stolen American industrial secrets. As a result, Meng Wanzhou, the chief financial officer at Huawei, was arrested in Canada and is being held within Canada, but the US has said it plans to request her transfer. Expectations are that a deal will be cut and that should advance market expectations and returns.

Europe

The renaming of the Republic of Macedonia has gone into effect this month. With the signing of the Prespa agreement, the Republic of Macedonia will henceforth be referred to as the Republic of North Macedonia. The change in name has removed a major hurdle in admission into NATO and the EU, as it garners Greek support for their ascension. However, receiving ratification from all 29 member states will take some time, and negotiation on admission into the EU will likely take much longer. Greece will enter into an election period in the next few months at a time when the EU stakes are high and risks are elevated.

UK Prime Minister Theresa May has received the approval of Parliament to begin renegotiations of Brexit; however, her efforts were rejected by the EU. To receive approval, the European Union has said the UK will need to adjust its redlines. The EU did express interest in pushing back the March 29^th PM May has pledged to bring back the vote on the deal in the near future but she has not set a specific date. If no deal has been reached by February 13, MPs will be given another opportunity to debate Brexit the following day. The sterling still looks relatively cheap and particular UK equities start becoming attractive.

The May European Parliamentary elections are taking shape. Like most major elections over the last several years, the EU wide elections are a fight between the establishment and populist insurgents. The contest may end in a decisive surge for anti-EU parties or unexpected gains for pro-European parties. However, this election is will be only the latest fight in the war between far-right populists and pro-European forces. The European markets do not look very attractive at this stage, as the European Commission’s gauge has fallen to 106.2 from 107.4. This drop marks the lowest level seen since November 2016.

The European Commission announced it is very close to launching a special purpose vehicle that will allow European companies to bypass US sanctions on Iran. However, the EU has yet to find a country willing to risk the ire of the US to host the vehicle. The Trump Administration has said that it considers such efforts a direct threat to its strategy of total pressure on Iran. It is not outside of the realm of possibility that the Trump administration may seek to place tariffs on its European allies, as it has done in the past.

Asia-Pacific

US and Taliban officials have reached a draft peace framework after almost a week of talks in Qatar. If the US and Taliban come to an agreement, this would be a major step for the removal of US troops from Afghanistan. An overly quick withdrawal of the US from Afghanistan could erode the authority and legitimacy of the Afghan government, raising the risk that the Taliban could recapture control of the country and return to power the same forces the US went to dislodge. Elevated risks amplify geopolitical uncertainties.

The US Director of National Intelligence, Dan Coats, stated he believes North Korea in unlikely to give up its nuclear weapons. This comes on the heels of calls by the North Korean government for further Korean integration and the preparation for a second summit with the US. It is not likely that any major achievements will be made at the summit, as negotiations are not generally conducted by heads of state.

Continue Reading