Frank Kelly’s Geopolitical Week Ahead | February 05, 2024

Tensions and military action in Yemen and the South Sea

As tensions and military action in Yemen and the South Sea continue to escalate, U.S. Secretary of State Antony Blinken returns to the region, traveling to Saudi Arabia, Egypt, Qatar, Israel, and the West Bank. Also in the region, French Foreign Minister Stephane Sejourne travels to Qatar, Egypt, Jordan, Israel, the Palestinian Territories, and Lebanon to discuss the situation and seek diplomatic solutions.

Later in the week, German Chancellor Olaf Scholz visits the White House for talks with President Biden on Ukraine, the Red Sea situation, and the Gaza War. We expect them to discuss transatlantic trade issues ranging from steel tariffs to electric vehicle production.

U.S. aid for Israel, Ukraine, Taiwan and the U.S. border

Meanwhile, in the United States, Israeli Knesset Speaker Amir Ohana will meet with U.S. House Speaker Mike Johnson (R-LA) in advance of a likely vote on a substantial, stand-alone aid package to Israel. While we expect such a stand-alone bill to pass overwhelmingly in the House, it will have trouble in the Senate as a bipartisan group of senators is expected to unveil a draft bill combining greater U.S. border security and military aid to Ukraine, Israel, and Taiwan. How the House intends to reconcile its stand-alone effort with the more comprehensive Senate bill is unclear – especially as military aid to Ukraine becomes increasingly time-sensitive and much needed. House Republicans have rejected any border security proposals from the Senate, saying they are not enough.

Asia’s Lunar New Year

In Asia, the Lunar New Year – the Year of the Dragon – begins at the end of the week. Stock markets in China and Taiwan will be closed for the better half the week after.

Global economics

It is a relatively quiet week on the global economic report radar screen. S&P Purchasing Managers' Index (PMI) reports are being reported globally. In the U.S., the Fed’s Senior Loan Officer Opinion Survey is out this week, and consumer price index (CPI) numbers are out later in the week. In Asia, all eyes are on China’s inflation figures.

U.S. financial regulatory week Ahead

The work of the Financial Stability Oversight Council (FSOC) gets a thorough review this coming week as Treasury Secretary Janet Yellen testifies before both the House Financial Services Committee and the Senate Banking Committee. Secretary Yellen will present the FSOC's annual report. We should expect a wide range of regulatory issues – particularly the Federal Reserve's proposed bank capital rulemaking as well as the Consumer Financial Protection Bureau’s (CFPB) recent proposal on overdraft fees to come under intense criticism.

Securities and Exchange Commission

Also, this coming week, the Securities and Exchange Commission (SEC) will be considering new regulations as to whether to further define the phrase "as a part of a regular business" as used in the statutory definitions of the terms "dealer" and "government securities dealer." This is all part of SEC Chair Gary Gensler's efforts to reform the Treasury bond trading system.

In a House Financial Services Committee hearing last week looking at the SEC's proposed changes to how investment advisors should crypto, real estate, and other assets, Representative Andy Barr (R-KY) released letters from both Fed Chair Jay Powell and Acting Comptroller of the Currency Michael Hsu expressing their concerns over the proposal.  Barr had sought their views on the proposal and, in a surprise to many, both Powell and Hsu responded in advance of the hearing, expressing their criticisms (this seems to be a new thing in the Washington regulatory space: Financial regulators criticizing other regulators publicly when they disagree on proposed regulations instead of working it out quietly behind the scenes –- recall our note from last week pointing out the sharp public criticism Fed Governors Christopher Waller and Michelle Bowman leveled at Fed Vice Chair Michael Barr's capital requirement rule. 

Powell said the proposed rule "…requires a significant change in custody practices at depository institutions," while Hsu said it "would be a departure from the usual manner in which bank custodians hold clients' cash" while its "liability and indemnification requirements would be another departure from current practice." Clearly, the SEC is headed to a significant revision in the proposal.