Frank Kelly’s Geopolitical Week Ahead | January 7, 2024

Taiwan's presidential elections

The most significant event for markets globally in the coming week is without a doubt Taiwan's presidential elections on January 13.  The last set of polls to be released suggest it will be a close race. Lai Ching-te, the Democratic Progressive Party (DPP) candidate, was leading Kuomintang (KMT) Party candidate Hou Yu-ih by five points – but Hou and the KMG appeared to be moving up in the polls. Public polling is banned by law for ten days before the election to avert disinformation campaigns (mainly from China), which could confuse voters, so the last set of polls to be released was on January 2. Markets will closely watch Beijing's reaction to the election, especially if the DPP wins the presidency. Beijing sees the DPP as the most resistant to reunification, and the KMT is seen as more open to the idea.  For an excellent preview of the elections, we recommend watching this discussion led by Brookings Institution Director of the Thornton China Center, Ryan Hass.

Israel-Hamas

Also next week, the situation in Gaza will continue to dominate headlines as leading Western diplomats – including U.S. Secretary of State Antony Blinken and German Foreign Minister Annalena Baerbock crisscross the Middle East seeking to restart negotiations over the release of Israeli hostages being held by Hamas as well as trying to reduce growing tensions in the region which have intensified in the last week following the killing of senior Hamas militant leader Hassan Nasrallah in Lebanon (enraging Iranian-proxy militia Hezbollah leadership who Nasrallah was under the supposed protectorate of).

Additionally, markets are watching closely for what will happen in the coming week in the Red Sea to whether Houthi forces will attempt to ramp up attacks on commercial shipping. The spot rate for shipping goods between Asia and Europe has jumped 173% since mid-December.

U.S.: Congress to figure out appropriations bills or face a government shutdown

Here in the U.S., Congress returns late Monday night following the Christmas and New Year break to face an intense two weeks to figure out appropriations bills or face a government shutdown. At this point, we see it as almost impossible they will successfully get what needs to be done, and unless they approve another short-term budget extension (which House Speaker Michael Johnson (R-LA) opposes), a shutdown is likely.

Added to this is the ongoing and time-sensitive vote for a military aid package to Ukraine and Israel. A vote has been complicated by Republicans' demands that U.S. border security and immigration provisions be included. Senate Democrats and Republicans have been bitterly split on how – and if – such provisions can be achieved.

U.S. financial regulatory week ahead

Looking at financial services issues, we note two Congressional hearings scheduled for next week. The first is a House Financial Services Committee Subcommittee hearing examining the Department of Labor’s proposed Fiduciary Rule (which the securities industry strongly opposes). The second is another Financial Services Subcommittee oversight hearing, this one pointedly looking at the Financial Stability Oversight Council (FSOC) and the “Regulatory Whiplash” FSOC causes with its “Ever-Changing Designation Framework.”

Also of note is that next week, Treasury Secretary Janet Yellen will give a speech at the FinCEN Headquarters on the newly implemented Beneficial Ownership regulations. The rules continue to attract strong opposition from a number of powerful members of Congress as well as leading small business lobbying groups, and Yellen is ramping up Treasury’s defense of the rules. 

Also, this coming week, global antitrust oversight will come into focus in Palo Alto, California, as EU Commissioner for Competition Margrethe Vestager and UK Competition and Markets Authority CEO Sarah Cardell will both give major addresses.  Both are also expected to hold sideline meetings with leading hi-tech CEOs – including the CEOs of Alphabet, Apple, Broadcom, and Nvidia –  to discuss ongoing investigations and concerns about U.S. Big Tech operations in Europe. This comes as it appears the U.S. Justice Department is moving closer to filing a massive antitrust case against Apple.

Finally, we would flag what will likely prove to be a fascinating post-mortem discussion of the downfall of Credit Suisse at the Peterson Institute for International Economics. Eva Hüpkes, the Secretary General of the International Association of Deposit Insurers and a member of Switzerland’s Expert Group on Banking Stability, will be sharing her insights into what happened.

Global economics

Moving to the global economic outlook, markets will focus on the U.S. inflation report later this week and inflation reports from Japan and China. China will also be reporting trade data later in the week. Looking at Europe, the UK will report gross domestic product (GDP) figures while Germany reports important trade figures and factory orders.