Davos faces now customary global uncertainty

January 21, 2015

Swiss special police officers observe the surrounding area from atop the roof of Davos Congress Hotel in Davos

The great and good are in Davos facing a rather uncertain landscape yet again (‘twas ever thus for the last seven years).

During their four days of networking and debate, the European Central Bank will launch quantitative easing and Greeks prepare to go to the polls. More widely, the United States now looks just about the only significant bright spot in the world economy.

A  worldwide survey of more than 1,300 CEOs, released on the eve of the Jan. 21-24 World Economic Forum annual meeting, found executives are more worried than a year ago about the global economic outlook, as deflation stalks Europe and commodity prices sag, while the U.S. stands firm and the dollar climbs.

The WEF said last week the risk of international conflict was now the biggest threat facing countries and businesses, trumping economic concerns. That already looks questionable.

The headliners include Chinese premier Li Keqiang, Germany’s Angela Merkel and Bank of Japan Governor Haruhiko Kuroda. Mario Draghi is skipping, for obvious reasons, but the central bank governors of Brazil, Mexico, Britain, Japan, Canada, Switzerland, Italy and France will attend, as will International Monetary Fund chief Christine Lagarde.

Today, Davos will hear from Li Keqiang, Italy’s Matteo Renzi and Turkish premier Davutoglu. Ukraine President Petro Poroshenko is also due to speak but is cutting short his visit due to another escalation of fighting in eastern Ukraine.

Ukraine’s military said last night that some of its army units came under attack from Russian regular forces in eastern Ukraine. The announcement is one of the boldest assertions yet by Kiev of direct Russian military involvement in the conflict between pro-Russian separatists and government forces.

In his State of the Union speech last night, Barack Obama  pledged to raise taxes on the rich and told Republicans he would veto legislation that would roll back his healthcare law and loosening of immigration policy. Any attempt to increase sanctions on Iran while negotiations with Tehran over its nuclear program are still under way would also be struck out.

But in other key areas, not least for Europe, Obama will try and find common ground with his opponents. He urged Congress to give him trade promotion authority, the power to negotiate free trade deals. Some Democrats have opposed giving him the power, fearing the deals will hurt American labor but Obama has said he wants to reach out to Republicans who support free trade.

If he gets fast-track authority, the EU/U.S. trade deal is very much in play for the remainder of his presidency and will put the ball at least partially back in the EU’s court. If he does not, negotiations are likely to run into the sand.

The European Central Bank’s Executive Board met yesterday to thrash out an agreed quantitative easing plan – how big, how to structure it, whether to launch it immediately etc. There will still be plenty of room for debate in the full policy meeting with the Governing Council, after which a decision will be announced Thursday lunchtime.

The Bank of Japan has cut next fiscal year’s inflation forecast and expanded a loan scheme aimed at boosting lending as a slump in oil prices pushes inflation further away from its target. But it held off on expanding its massive QE programme.

France’s Socialist government is due to unveil new security measures. President Francois Hollande’s popularity ratings have climbed off the floor since the Paris attacks which killed 17. This is a crucial moment for him to demonstrate that the establishment can be sufficiently tough on security to stop voters flocking to parties such as the far-right National Front.

Minutes of the Bank of England’s last policy meeting, at which again nothing happened, and latest UK unemployment and average earnings data are due. The latter might be of most interest. With inflation plunging, incomes are finally rising in real terms for pretty much the first time since the 2010 election, and with the next poll only four months away.

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