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

North America

The US and Mexico have reached an agreement to revise key portions of the North Atlantic Free Trade Agreement (NAFTA). The new agreement will be renamed the United States-Mexico trade agreement rather than NAFTA.

This preliminary agreement currently excludes Canada, so it cannot count as a “revision” of NAFTA. It is unlikely that a bilateral agreement between the US and Mexico would replace NAFTA; many North American industries and American jobs depend on supply chains across the continent. Republican lawmakers have vehemently opposed any such arrangement, and Congress would likely need to withdraw from NAFTA before signing any agreement that could supersede it.

Looking forward, remarks by US Federal Reserve officials at the 2018 Economic Policy Symposium were in line with market expectations that the Fed intends to raise interest rates twice this year, the biggest annual tightening in over 10 years. An expanding group of domestic and international issues, which include over-extension of credit and emerging market currency issues, could impact the Fed’s decisions later in the year.

Despite progress this summer, talks between the US and North Korea have slowed to an almost halt this month, as a letter delivered to Secretary Mike Pompeo said that Kim Jong Un’s government felt that progress could not continue as the US was still not able to meet North Korean expectations. Failure to resume talks could result in the North Koreans resuming nuclear testing and a continuation of economic isolation towards North Korea.

Europe

The British Government told companies trading within the EU that they could face border delays and higher credit card payments if no deal is reached. The UK Chancellor for the Exchequer Phillip Hammond announced that a no-deal scenario could result in an £80 bn hit to GDP, not to mention the potential it has to completely destabilize the EU single market.

Italy’s populist government remains at odd with the EU, as it plans to meet budget pledges equaling over €100 bn or roughly 5% of GDP. Italy’s deputy Prime Minister said Italy may exceed the EU’s deficit limit in order to increase investment in the economy. Italian 10-year yields reached three month highs of 3.19% on Tuesday.

In a statement to French Ambassadors, French President Emmanuel Macron stated he would put forward new proposals for the EU to enhance defense cooperation and called for Europe to build a “strategic partnership” with Russia, suggesting it could no longer rely on the US. This is a distinct break from the past and is likely a response to the US President’s attitude towards its European allies. Macron’s statement followed a similar call for increase European defense cooperation made by the German Foreign Minister.

Greek Prime Minister Alexis Tsipras addressed the nation from the Island of Ithaca last week to proclaim a better economic future for Greece after it exited the IMF bailout program. This proclamation was somewhat unwarranted, however, as Greece remains in debt to its former creditors and must maintain a primary surplus of 3.5% of GDP by 2022 and 2.2% by 2060. Since 2015, Greece has taken out 61.9 bn of an available 86 bn available under the European Stability Mechanism’s (ESM) financial assistance program.

Asia-Pacific

As trade tensions with the US continue, there is rising concern in Chinese camps that the tariffs levied by the US are part of a larger geopolitical and geoeconomic strategy aimed at containing China. If this is true, then the stakes have been raised for the Chinese, as concessions become all the more significant and unlikely.

Official data for July showed a slowdown in Chinese investment, factory production and retail sales. The Shanghai Composite is down about 23% from its recent peak in January. The Chinese Yuan has lost nearly 9% of its value versus the US dollar since April.

India’s central bank has set a 180-day timeline to restructure an estimated 3.6 tn rupees ($52 bn) of stressed loans. This decision is part of a broader effort of the central bank to clean up banks suffering from the world’s second-worst bad-loan ratio after Italy. India represents a trend of emerging market economies struggling with bad debt and currency issues.

Last week, Australian Prime Minister Malcolm Turnbull was defeated by Scott Morrison in a leadership election and has since announced that this Friday he will resign from Parliament. Turnbull’s resignation will trigger a by-election in his district. Turnbull’s defeat and resignation marks an unstable trend in Australian politics over the past two decades, with regular turnover in prime ministers. The Australian dollar got a small boost towards the end of last week with the news of the new PM.

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