Frank Kelly’s Geopolitical Week Ahead | May 20, 2024

Memorial Day is a week from this Monday, traditionally seen as the beginning of Summer in the US. Much of the rest of the Northern Hemisphere is roughly on the same seasonal scheduling, and we suspect we are looking forward to (hopefully) a peaceful and somewhat relaxing summer. But before we get to our beach vacations or mountain hideaways for a break, plenty is going on geopolitically. 

Helicopter crashes with Iranian President Ebrahim Raisi on board

First, as we got ready to publish this note, news broke that Iranian President Ebrahim Raisi and other senior Iranian officials had gone down in a helicopter crash in the northwest sector of Iran. The video footage of the rescue effort showed a dense fog hanging over the mountainous terrain, and no one had found the wreckage yet, nor had we known who was still alive. 

However, the impact of any Iranian leadership will likely worry the markets. We would note, however, that Raisi is not the ultimate leader – Supreme Leader Khamenei is – and the idea of any internal struggles or regional risk developing from the crash is unlikely for many reasons (which we would be more than happy to discuss if you want separately).

Taiwan to inaugurate a new president

Also, this week, Taiwan inaugurates a new president on Monday. Lai Ching-te is replacing Tsai Ing-wen, and Lai’s inauguration speech will be closely watched for signs of how he will navigate the tense cross-strait relationship with China. Lai’s cabinet choices and his experience in and around the government suggest a status quo relationship with Beijing going forward (not great, but hopefully not getting more inflamed).

Trilateral meeting: Japan, China and South Korea

Meanwhile, later this week, the Prime Ministers of Japan, China, and South Korea will gather for the first time since 2019 for trilateral meetings in Seoul, South Korea. China — which is Japan’s and South Korea’s largest trading partner — will likely warn the two countries about their growing security and trade engagement with the U.S. However, a good portion of the talks will be on mutual concerns and interests, such as climate change, the situation in North Korea, and trade.

Global economic radar screen

Looking at the global economic radar screen this week, G7 finance ministers and central bank heads will gather in Italy later this week to discuss the global economic outlook and the economic impact of the Russian War on Ukraine. Watch for further decisions on whether to seize Russian assets held in the West to fund the Ukrainian defense efforts. 

Regarding economic data releases this week, the Federal Reserve releases its meeting minutes on Wednesday. Staying in the US, the University of Michigan Survey comes out on Friday, and durable goods orders are also available.

In Europe, markets will watch the UK inflation data report, the German PPI report, and Germany’s Q1 GDP figures.

U.S. financial regulatory week ahead

Of particular note, Federal Reserve Board Vice Chair for Supervision Michael Barr is giving two important speeches this week on regulation. And the Atlanta Federal Reserve Bank is holding their 28th Annual Financial Markets Conference. 

Also this week, the Investment Company Institute is holding its annual meeting in Washington, and SEC Chair Gary Gensler will speak and participate in a fireside chat to discuss issues of concern to the mutual fund industry.

Washington is still talking about the ongoing crisis at the FDIC in the wake of the independent report implicating FDIC Chair Marty Gruenberg for bullying and inappropriate behavior and tolerating bad behavior among senior managers. Gruenberg endured two grueling hearings before the House Financial Services Committee and Senate Banking Committee last week but seems to have survived as a number of Congressional Democrats came to his defense. Gruenberg continues to refuse to step down but we believe the pressure will continue and the situation to remain tense at the FDIC.

Also last week, the Consumer Financial Protection Bureau had a big week, triumphantly winning a Supreme Court case (7-2 vote) upholding the agency's legitimacy and ability to bring regulations against payday lenders. This ends years of uncertainty about the future of the CFPB and has boosted CFPB Director Rohit Chopra's agenda, which focuses on credit card fees. "The CFPB will be able to forge ahead with our law enforcement work," Chopra told reporters after the decision was handed down.

Reviewing Congress last week, the House Financial Services Committee moved several pieces of legislation for the full House of Representatives to vote on in the coming weeks. One is legislation making fewer banks subject to key regulations such as the Volcker Rule while scrutinizing the Federal Reserve's bank merger, stress testing, and discount processes. Another bill they passed would direct the SEC to conduct cost-benefit analyses of its rules and review them every five years.

Both bills have little chance of advancing once they pass the House and are sent to the Senate Banking Committee.