2018 the year ahead , FT

The year ahead: US midterms, Saudi Aramco IPO, World Cup

JANUARY 1, 2018

In this month-by-month guide, the Financial Times looks at the big events of 2018. Some events do not stay still — Brexit remains a hot, but very moveable topic, and there is as yet no date fixed for what looks to be the big corporate event of 2018: the Saudi Aramco IPO. There are also likely to be shifts in monetary policy, though we do not yet know when.

January

TRUMP’S STATE OF THE UNION SPEECH

US President Donald Trump will deliver a State of the Union address to Congress on January 30. The speech, typically given every year of a president’s term except the first, reports on the condition of the US and allows the leader to outline legislative and other policy priorities. Mr Trump delivered a speech to Congress in February 2017, a month after entering office, but that was not officially a State of the Union address. After a colourful first year in office, which has included an investigation into whether his election campaign colluded with the Russian government, insults and threats of war with North Korea, and an effort to pass business-friendly legislation, there will be great interest in his plans for the next year.

Trump, Xi and a dark year for democracy

February

WINTER OLYMPICS

The 2018 Winter Olympic Games open at South Korea’s Pyeongchang Olympic stadium, a temporary venue with capacity for 35,000 spectators, on February 8, with the closing ceremony taking place on February 25. South Korea has faced construction delays, logistical conflicts and lack of enthusiasm from sponsors in the run-up to the games and ticket sales have been slow, leaving organisers $267m short of the $2.4bn budget. However, previous Olympic host cities that faced similarly slow ticket sales saw them rise significantly as the games drew closer.

The International Olympic Committee has added four new contests for 2018 — big air snowboarding and freestyle skiing on the slopes, while the ice will host mass-start speed skating and mixed doubles curling. In total there will be seven sports — biathlon, bobsleigh, curling, ice hockey, luge, skating and skiing — with 15 varied disciplines across all sports and 102 medals up for grabs.

Can Russia help China crack men’s pro ice hockey?

CASTRO SET TO STAND DOWN

Raúl Castro is due to step down as president of Cuba, the first time a Castro has not held the post since the start of the revolution almost 60 years ago. Miguel Díaz-Canel, vice-president and a politburo member since 2003, has been groomed to take his spot. Mr Castro’s retirement will not be total. The 86-year-old is likely to keep his more powerful position as first secretary of the Communist party, as well as de facto control of the armed forces.

Mr Díaz-Canel, a 57-year-old engineer who has recently made stern speeches about the permanence of the revolution, faces an invidious position. The economy is in its second year of recession. The partial economic liberalisation begun by Mr Castro in 2008 has been put on ice. Venezuela, Cuba’s closest ally, is in crisis. China, another ally, has cut exports to Cuba by a quarter due to the country’s financial problems. Havana also faces chillier US relations, given Donald Trump’s partial reversal of Washington’s historic opening to the island. Internally, debate is being stifled amid a broader clampdown, which is Cuba’s traditional response when it faces difficult situations. However, stopping or reversing liberalisation measures also ignores a basic problem — Cuba desperately needs more investment and its population is ageing fast.

Trump’s Cuba clampdown attacked for being too weak

FED CHAIR YELLEN TO DEPART

Janet Yellen, the chair of the Federal Reserve, is due to hand over the top role at the US central bank to Jay Powell in February, meaning the central bank’s January meeting will be her final one. A new vice-chair is due to be appointed to replace Stanley Fischer, and further board seats are open as well as the post of president of the New York Fed. on top of that, the rate-setting Federal Open Market Committee will have a new crop of regional Fed presidents rotating on board. Among them are Cleveland’s Loretta Mester and John Williams of San Francisco, giving the committee a hawkish hue.

With a modest additional stimulus set to come in 2018 from the Republican tax cuts, the key economic policy question will be how aggressively the Fed intervenes to prevent the buoyant economy from overheating. The Fed’s most recent forecasts point to three rate increases in 2018, but the big question will be whether the central bank accelerates the expected pace of tightening.

March

RUSSIA’S PRESIDENTIAL ELECTIONS

The election is set to have precious few surprises, with President Vladimir Putin widely expected to cruise to a fourth term, extending his rule to 2024 and making him Russia’s longest-serving leader since Joseph Stalin. 

Mr Putin’s opponents mostly consist of loyal oppositionists who have stood in every election for two decades. The one fresh face is Ksenia Sobchak, the 36-year-old daughter of his late political mentor. Ms Sobchak, a socialite and television show host, is encouraging Russians to show their impatience with a tired system by voting for her — but has failed to dispel suspicions that her candidacy is Kremlin-approved. 

Alexei Navalny, Mr Putin’s only serious independent opponent, has been barred from running in the election, but he has vowed to mount an extensive campaign to disrupt the election with demonstrations and a call for supporters to boycott the process.

Kremlin warns Navalny against election protest

ITALY’S GENERAL ELECTION

Italy goes to the polls on March 4 in an election that could be pivotal for Europe as it tries to forge greater unity after the Brexit vote and the victory of Donald Trump in the US. 

The Eurosceptic, anti-establishment Five Star Movement is leading opinion polls, with the support of about 28 per cent of Italians — compared with about 25 per cent for the ruling centre-left Democratic party, led by former prime minister Matteo Renzi. But both could be overtaken by a resurgent centre-right. Forza Italia, led by Silvio Berlusconi, the former prime minister, is expected to team up with the anti-euro and anti-immigrant Northern League, as well as the far-right Brothers of Italy party, in a coalition that would be worth more than 30 per cent of the vote, if it manages to stick together.

Given the likely three-way split, the winner may struggle to form a government, leading to high political uncertainty in the eurozone’s third-largest economy, and possibly a second election later in the year. Paolo Gentiloni, above, the centre-left prime minister, and his cabinet, will remain in charge between now and the March vote, but it is unclear whether they would be in a position to do so afterwards.

Italian vote poses next test for EU recovery

VENEZUELA’S PRESIDENTIAL ELECTIONS

Everything suggests Venezuela’s incumbent Nicolás Maduro stands a good chance of winning this year’s elections. The vote could be as early as March as Mr Maduro, in power since 2013, seeks to build on the momentum of late 2017 when he won regional and municipal elections and successfully divided the opposition.

A poll in December showed that if elections were held immediately, Mr Maduro would win 29 per cent of the vote, more than 10 percentage points above any other candidate. His popularity comes despite presiding over one of the biggest economic collapses in Latin American history, hyperinflation, falling oil output, corruption, food shortages, state repression and a growing humanitarian crisis.

The ruling socialists’ other big challenge of 2018 is how to stay afloat financially. International reserves are at a 15-year low and the government is scrambling to restructure its debt obligations. It has already missed coupon payments on several bonds.

The government’s next big challenge is in April and May when it has to find more than $2bn for bondholders. Other big repayments are due in August and the fourth quarter. In all, it will have to repay about $9bn to creditors during the year — almost the sum total of its foreign reserves.

Talks in the Dominican Republic between the government and opposition are likely to trundle on in early 2018 but nothing suggests they will produce a significant breakthrough. Indeed, in December Mr Maduro threatened to ban the main opposition parties from the presidential vote. Such a hardline approach could prompt further US and EU sanctions against Venezuela during 2018.

Venezuela lurches towards dictatorship

May

IRAQ ELECTIONS

Iraqi prime minister Haider al-Abadi and his top international ally, Washington, have reasons to hope for a decisive victory in the 2018 parliamentary elections that could sideline the more hardline Iranian-backed elements that long hampered his rule. But the jockeying yet to come will reflect how fragmented — and potentially unpredictable — the country’s political dynamics have become. 

With help from the US-led international coalition, Mr Abadi has led his country to successfully routing the jihadi group Isis. In the autumn of 2017, his popularity among Iraqi Arabs surged even higher as he outmanoeuvred a failed effort by Iraq’s autonomous Kurdistan region to begin a push for independence.

But it is not only Mr Abadi who has emerged as a hero in the war on Isis. So have an array of hardline, Iranian-backed Shia militias that are expected to form their own rival political bloc that could split the country’s Shia majority, which for so long has dominated the government. Mr Abadi can also no longer count on partnering politically the Kurds, reeling from their foiled independence referendum. They may seek electoral allies in strange places — perhaps even with the premier’s cunning political rival and predecessor Nouri al-Maliki, a move that could further fragment Iraq’s old political order.

Putin won the Syria war but can he keep the peace?

June

WORLD CUP

The Fifa World Cup, international football’s showpiece event, begins on June 14, with the tournament under a cloud even before a ball has been kicked. Questions over the award of the event to Russia, criminal investigations into alleged corruption at governing body Fifa, Moscow’s military interventions, an Olympic doping scandal, allegations of meddling in western elections, and fear of Russia’s football hooligans have all combined to damp enthusiasm for the event. 

The tournament will see a number of the most successful football nations absent, most notably Italy, World Cup winners on three occasions, and three-time finalists the Netherlands, who both failed to qualify. The US will also be absent for the first time since 1986 after they failed to navigate what should have been a straightforward qualification process.

Brazil, inspired by star player Neymar, and Germany, a team that thrives off its collective spirit, will start as favourites for the tournament, with France, Argentina and Spain also likely to challenge. Iceland will take their place as the smallest nation ever to compete in the tournament, while Panama, who face England in qualifying, will also play in their first World Cup. on the pitch, Russia 2018 could mark the final appearance on a World Cup stage for the two dominant players of their generation: Portugal’s Cristiano Ronaldo and Lionel Messi of Argentina.

Russia’s World Cup: a Putin own goal?

G7 SUMMIT IN CANADA

La Malbaie, a small picturesque town north-east of Quebec City, plays host to the G7 summit, where leaders of the seven richest economies in the world — Canada, France, Germany, Italy, Japan, the UK and US — meet to discuss policy.

It will be the sixth time Canada has hosted the meeting and Quebec has outlined a progressive agenda, with focus on investment in inclusive growth, climate change, peace and security, and gender equality — including sexual and reproductive health. Justin Trudeau, Canada’s prime minister, has said gender equality will be at “the top of the agenda and I look forward to working with my counterparts to promote gender equality, both at home and abroad”.

G7 lays bare gulf between US and partners

July

MEXICO’S PRESIDENTIAL ELECTIONS

José Antonio Meade, the ruling Institutional Revolutionary party (PRI) candidate in the July 1 elections, wore traditional costume when he launched his campaign in San Juan Chamula, an indigenous stronghold in the region that launched the Zapatista uprising in 1994.

While Mr Meade, Mexico’s former finance minister, said all the right things, his delivery was wooden. By contrast, after more than a decade of stump speeches in pursuit of the presidency, his main rival, the hard leftist Andrés Manuel López Obrador, is a passionate orator who can work a crowd effectively.

Mr Meade has a lot to overcome: he will have to convince voters they can trust him, the very official who put up petrol prices by 20 per cent overnight last January, triggering a surge in inflation. He will also have to reveal himself as his own man, not just a clone of an unpopular government that has spectacularly failed to rein in rampant corruption and a crime epidemic.

Mr López Obrador has already mapped out key policy goals, unveiled a prospective cabinet and toned down his firebrand rhetoric, but he remains something of a loose cannon with the ever-present ability to shoot himself in the foot. With Nafta negotiations heading for the rocks next year, voters may well — however reluctantly — decide it is better the devil they know.

Mexican presidential frontrunner names cabinet of experts

September

SWEDEN’S GENERAL ELECTION

The government, comprising the Social Democrats and Greens, crept up to a 36.4 per cent approval rating in December, according to official figures. Support for the far-right, anti-immigration Sweden Democrats party has fallen to its lowest level since surging during the migration crisis of 2015. The party’s approval rating shot to nearly 20 per cent in November 2015 after hundreds of thousands of people arrived in Sweden to seek asylum. 

Since then prime minister Stefan Lofven has wooed voters with a pledge to boost spending by more than $5bn in the budget for 2018 with much of the money going on welfare, education and the police. Together with the Left party, which supports the coalition in parliament, the government has 43.4 per cent support, up from 41.9 per cent in June. At its current level of support, the Sweden Democrats would still have enough clout to block either the centre-left or centre-right from forming a government after the election, should they fail to reach a majority.

2017 saw Europe’s mainstream centre out in cold

October

BRAZIL’S PRESIDENTIAL ELECTIONS

One of the ironies of Brazil’s electoral calendar is that presidential elections always fall in the same year as the football World Cup. But while the Brazilian football team is expected to do well this year — it could hardly get worse than the 7-1 defeat Brazil suffered to Germany in 2014 — the 2018 election could go either way. What is for sure is that Brazil has rarely faced such an unpredictable election in its modern democratic history, which began with the end of the military dictatorship in the 1980s.

Leading the polls are two candidates from opposite ends of the political spectrum. Former president Luiz Inácio Lula da Silva, from the leftist Workers’ party, has 17 per cent of voter intentions, according to pollsters. Next in line is extreme-right politician Jair Bolsonaro with 11 per cent of voter intentions. But analysts caution it is too early to take the polls seriously. Both Mr Lula da Silva and Mr Bolsonaro have serious handicaps that could knock them out of the race. Mr Lula da Silva has already been convicted on charges of corruption while he was president. An appeal on the ruling will be heard in January. If the conviction is upheld, Mr Lula da Silva will not be able to run.

Mr Bolsonaro represents a strong anti-establishment vote, which will be an advantage in an election in which voters disenchanted with corruption are expected to reject the traditional political classes. But he does not belong to any big party and lacks the election machinery of the larger political groupings. This would leave space for other expected candidates including the centrist São Paulo state governor Geraldo Alckmin and former supreme court judge Joaquim Barbosa. In an election expected to favour outsiders, the likely winner probably will not become clear until the second round of voting in October.

Brazil’s vulnerability is a big opportunity for Chinese investors

November

US MIDTERM ELECTIONS

The results of the midterms will be seen as the first nationwide referendum on Donald Trump’s presidency and how far dissatisfaction with the Republican establishment has spread. It will also be a test for the Democrats to measure how energised their base has become since Mr Trump’s election. Democrats will seek to regain control of Congress — a tough challenge, but still achievable. Thirty-three seats in the US Senate are up for re-election, as well as all 435 seats in the House of Representatives. About 36 of 50 state governorships are also in contention.

The stakes are high for the Democrats, who have not had control of Congress since 2011. More seats will be vital for them to block legislation or nominees in Mr Trump’s third and fourth years. The Democrats have reason to be optimistic. November 2017 gubernatorial elections in New Jersey and Virginia were won by Democrats after Mr Trump endorsed their Republican opposition. Aside from the president’s plummeting approval ratings, Republican candidates will also be facing unusually well-funded Democrats and the Alabama special election in December generated voter turnout usually not seen outside presidential elections. 

The Democrats must secure a net victory of 25 seats to win back control of the House, and consider 91 districts to be in play, including many seats held by Republicans. This will require the Democrats to be competitive in some of the more politically conservative regions that have not voted Democrat in decades and struggle with low levels of racial diversity and education. Because the senate seats up for re-election are overwhelmingly Democratic, the focus for Democrats will be on defending their 25 seats and taking a majority in the House of Representatives.

Democrats struggle to take on Trump

December

G20 SUMMIT

Leaders from the biggest 20 global economies meet in Buenos Aires from November 30 to December 1, the first time a South American country will host the summit, with Argentina and Brazil the only two G20 members from the continent. Both have transitioned to market-friendly governments in recent years and Argentina’s President Mauricio Macri has cast his country’s presidency of the G20 as a chance to mark its rise as an “important place” in the world and boost Latin America’s profile. He has also sought to combat protectionism, as the agricultural-exporting region seeks to secure market access for its goods. Meanwhile, France and Germany have called for a debate on bitcoin at the summit, reflecting global concerns about how cryptocurrencies are regulated. 

Argentina bans activists from WTO meeting

DRC’S PRESIDENTIAL ELECTIONS

Congolese president Joseph Kabila © AP

The long-awaited elections to replace President Joseph Kabila are set to take place on December 23, with the results to be published on January 9 2019, and the president to be sworn in on January 13.

The election, originally scheduled for late 2016, has been repeatedly delayed, which has triggered unrest and raised fears that the central African nation could slip back into the conflicts that killed millions around the turn of the century, mostly from hunger and disease.

The electoral commission said last month that the presidential vote could not take place until April 2019 at the earliest, which prompted the opposition to warn that the population would “take matters into its own hands”. Dozens died in protests against Mr Kabila’s refusal to step down at the end of his constitutional mandate in December 2016.

UN peacekeepers killed in Congo attack

COP 24 ENVIRONMENTAL SUMMIT

The city of Katowice hosts the 2018 UN Climate Change Conference. Patricia Espinosa, the executive secretary of the UN Framework Convention on Climate Change has said the conference will be a chance to build on earlier efforts to tackle environmental damage. “2018 will be another important year for international climate diplomacy as nations move forward to implement the Paris Climate Change Agreement — indeed 2018 is when governments are expected to reach some key milestones,” she said.

Macron steps up fight against climate change

Other events

BREXIT

The UK is seeking to hammer out a Brexit transition deal with the EU — intended to last about two years — by March 2018 at the latest. Otherwise companies might have to assume worst-case scenarios when planning for the 12 months running up to Britain’s scheduled exit date of March 29 2019. The EU and the UK are also seeking to strike a longer-term agreement on future relations by about October.

Despite UK prime minister Theresa May’s intention to conclude an ambitious trade deal, the EU says a detailed treaty will have to wait until Britain has left the bloc, with only a “political declaration” possible beforehand. An autumn 2018 deal would provide about six months for ratification by Brexit day — a deal would have to be backed by a supermajority of EU member states.

Although the negotiations have proceeded in phases, according to the EU nothing is agreed until everything is agreed. Britain’s divorce deal with the bloc — secured by Mrs May in December — will be part of a package with the transition and the future relationship arrangements. It may all stand or fall together.

The ins and outs of Brexit 2017

SAUDI ARAMCO IPO

Saudi Arabia plans to list shares in Saudi Aramco this year as part of an overhaul of the country’s economy, led by Crown Prince Mohammed bin Salman, who believes the state energy giant could be worth more than $2tn in what is being billed as the biggest flotation in history.

Officials are preparing for a listing on the domestic Tadawul stock exchange and Riyadh is considering an international flotation in New York, London, Hong Kong or Tokyo while also weighing an option to sell a stake privately to strategic investors. Donald Trump, the US president, and Theresa May, the UK prime minister, have pushed aggressively for the IPO. 

Within Saudi Aramco, a financial restructuring has taken place over the past year to separate the company’s accounts from those of the kingdom, while the producer seeks to draw a line between work it conducts on behalf of the government from its core business to make it look more like a traditional energy major. 

Will ‘world’s biggest IPO’ reach its $2tn prediction?

THE YEAR AHEAD FOR MARKETS

After the “Goldilocks year” of 2017, investors enter 2018 awaiting the arrival of the three bears. Inflation, monetary policy and economic growth combined to create a benign environment for markets over the past 12 months, and the main question for investors this year is how much longer that can continue.

The prime candidate for price shifts is the bond market, which has been in a bull run for more than three decades — and there are reasons to suspect that 2018 may be the year in which that megatrend finally stutters.

In the US, economic growth fuelled by tax cuts is set to see the Federal Reserve raise rates many times in the coming year and unwind its crisis-era emergency quantitative easing bondholdings, moves that are expected to push fixed-income yields higher. The increased volumes of debt issuance needed to pay for Washington’s fiscal plans could also affect Treasuries’ pricing.

That may help give equities a further leg up on top of the series of record-breaking highs that Wall Street hit last year, although focus on individual performers within sectors could increase if stockpickers become more selective.

Meanwhile, the eurozone’s economic recovery and the European Central Bank’s scaling back of its bond-buying programme give investors cause to anticipate higher European bond yields. This could have knock-on effects for high-yield credit, which has been booming in recent months.

Equities have room to rally further if the continent’s economic upswing feeds through into corporate earnings reports. But if inflation and wage growth remain low in developed markets, that could act as a brake on central bankers’ policy-tightening.

Last year’s concerns about political risk largely failed to materialise but the tremors continue to resonate, with markets eyeing the forthcoming Italian election and German attempts to form a government. Around the globe, the Middle East and the Korean peninsula are the main flashpoints that could drive investor jitters.

In commodities, the oil price recovery is widely expected to continue with $50 a barrel acting as a floor in market expectations, but any slowdown in China’s economic outlook would hit commodity prices.

The benign global economic outlook provides reason to believe that emerging markets’ stellar 2017 investment performance will continue this year, although rising fixed-income yields in developed economies could lure away yield-hungry investors.

https://www.ft.com/content/1f3ead46-d6b2-11e7-8c9a-d9c0a5c8d5c9