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

Four major geopolitical events unfold this coming week, which we believe will be of significant focus and interest to global markets.

1. 75th NATO Summit – First, the 75th NATO Summit in Washington, D.C., takes place this week. The ongoing debate over President Biden's re-election bid adds a layer of complexity to the summit, where the leaders of the NATO member states will convene to deliberate on crucial issues, particularly the strategy for supporting Ukraine in the future. The potential inclusion of Ukraine in NATO will be a pivotal point of discussion, underscoring the summit's significance.
   In addition, several Indo-Pacific leaders will be joining the meeting as NATO is expected to outline new plans on how to work more closely with Australia, Japan, and South Korea – something which is not playing well with China, Russia, or North Korea.
2. Indian Prime Minister Modi travels to Moscow – The second significant event his week is Indian Prime Minister Narendra Modi traveling to Moscow to participate in a summit with Russian President Vladimir Putin. This is Modi's first bilateral visit since being re-elected to a third term as India's Prime Minister. Traditionally, Indian Prime Ministers make their first visits to one of India's neighbors. However, Modi, who recently skipped the 2024 Shanghai Cooperation Organization meeting Kazakhstan and India-China relations remain tense, is looking to balance China's growing relationship with Russia. The two leaders are expected to discuss expanding economic ties and purchasing Russian military hardware.
3. French parliamentary elections – The third major event this week is the second round of French parliamentary elections. Following last week's near outright majority results for the far-right National Rally Party headed by Marine Le Pen, French far-left parties have been working with French President Emmanual Macron's centrist alliance to find a way to ensure Le Pen does not get that outright majority via the second round of voting – and, according to pollsters, it looks like they may have succeeded.
4. What will President Biden do? The fourth major event is what President Biden will do as a growing chorus of Democratic members of Congress and other Democratic leaders call for him to stand down from his re-election bid against former President Trump. As of this writing, Biden is insistent he will not withdraw because of physical and cognitive issues. However, the pressure seems to be mounting by the hour and the day, and most Washington observers believe it is highly likely he will have to withdraw, perhaps immediately after the NATO Summit.

Global economic radar screen

Looking to the global economic radar screen this week, markets will be watching closely as Federal Reserve Board Chair Jay Powell testifies twice before Congress – before the Senate Banking Committee and before the House Financial Services Committee – giving the semi-annual Monetary Policy Report.  Also this week, U.S. Treasury Secretary Janet Yellen testifies on the state of the international financial system. 

In terms of economic reports, the US CPI report will be of major focus this Thursday, and the PPI is out Friday.  Additionally, the University of Michigan consumer survey is out Friday.

Looking at Asia, China releases its monthly inflation print on Wednesday, while Japanese wage figures, PPI figures, and the trade balance will be of particular focus to markets. 

Moving to Europe, the U.K. monthly GDP report will be watched closely as the new Labour Majority takes power in Parliament.

U.S. financial regulatory week ahead

Washington gets back to work this week after a relatively quiet week last week (aside from the political hurricane that is raging here over whether President Biden should withdraw from the Presidential campaign or not).   Congress is back – the House was out last week and the Senate the last two weeks.  And both chambers will have important hearings this coming week.

• First, Fed Chair Jay Powell will give his semiannual monetary policy report to the Senate Banking Committee and House Financial Services Committee. Aside from a lot of probing questions about the state of the economy, we expect a fair number of questions about the status of the Fed’s bank capital requirement proposal – how it is being re-written, when will Congress see the draft, etc.
• Also this week, Treasury Secretary Janet Yellen will testify before the House Financial Services Committee to give her annual State of the International Financial System report. There will surely be a myriad of regulatory questions, especially in the wake of the U.S. Supreme Court striking down the Chevron doctrine – what does this mean for financial regulation going forward?  What does it potentially mean for existing financial regulation as a flood of lawsuits in federal court are likely to challenge a lot of the regs now on the books?
• The Senate Banking Committee will hold confirmation hearings for Christy Goldsmith Romero to become the new Chair of the Federal Deposit Insurance Corporation. Our view is it is going to be very hard lift to get Republicans to go along with a quick confirmation between now and the November elections.  But at least the White House and Senate Banking are getting the ball rolling.
• Additionally, this week, the Senate Agriculture Committee will hold an oversight hearing on the crypto markets. CFTC Chair Rostam Benham will testify.

And back to the Chevron ruling last week:  It was not a good couple of weeks for financial regulators across the board.   The Supreme Court ruling was a major blow to regulators of every sort, giving more power to federal judges. Chief Justice John Roberts could not have been clearer in his majority ruling: “Chevron is overruled.”  

But it was just not Chevron that hit financial regulators hard. The SEC was whacked with the SEC v. Jarkesy case which significantly curbs the powers of the SEC’s in-house judges.  And the Federal Reserve was hit in the Corner Post v. Board of Governors of the Federal Reserve System over the Fed’s debt card swipe fee regulation. While it was not an outright victory for the plaintiffs, it does give Corner Post (and all the groups supporting them) the ability to proceed with their litigation against the Fed.