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Watch List: Aug. 7, 2017

|August 7, 2017

The items listed below represent potential emerging issues that our analysts are tracking. These can be long term or short term, but will be updated daily. If an item on our Watch List becomes critical, we will email you a full analysis explaining its significance.

Each Saturday, we will follow up our daily Watch List for each week with our conclusions on these issues.

  • North Korea: North Korean and South Korean officials met on the sidelines of the Association of Southeast Asian Nations meeting, and North Korea said entreaties from South Korea for talks lacked sincerity. U.S. National Security Adviser H.R. McMaster said the United States is preparing for pre-emptive war with North Korea. The United Nations levied new sanctions against Pyongyang, and China is urging the North to stop its missile tests. We’ve been watching North Korea for a while, and there isn’t a reason to change our assessment, but let’s consider the possibility that all of this political drama might be setting the stage for some kind of diplomatic concession for the North Koreans.
  • Venezuela: A former national police captain openly challenged the Nicolas Maduro government and said he was engaging in a civil-military action to establish constitutional order. The military stepped in and regained control of the area. This is the second time in about six weeks that a former security officer has openly defied Maduro. Are we detecting any signs or gestures that indicate an alignment between the Democratic Unity Roundtable coalition, dissident Chavistas and the military? How have Colombia and Mexico responded to this weekend’s events? What is Cuba’s current role and policy toward Venezuela? Are there any signs that weapons have been stolen? And have any members of the National Guard spoken out against the government? We have a defined model of Venezuela, and we expect to see things like this, but are we reaching a point where the government can no longer hold? What would a post-Maduro Venezuela look like?
  • Abkhazia: Details are still emerging from the scene of an explosion late last week at an artillery depot in the Georgian breakaway region of Abkhazia. Meanwhile, forces on the Armenia-Azerbaijan border have been busy: Azerbaijan says Armenia has violated the cease-fire between them 146 times in the past 24 hours. A larger review of the Caucasus is underway, and these events should be understood in the context of that review, but we also need to know what they mean more immediately. The explosion in Abkhazia is an anomaly, and the border incidents could lead to violence.
  • Germany: Germany’s industrial output dropped in June, contrary to market expectations. The mainstream press has said that this is just a seasonal decline. We need to integrate this data point into our review of European economic growth and demand.
  • Russia: Russia’s largest bank, Sberbank, had a year-over-year increase in profits of more than 35 percent. Can we draw any broader conclusions about the Russian economy from this?
  • France: French President Emmanuel Macron will visit Eastern Europe later this month and will reportedly push for rules that protect French workers from cheaper competition in Eastern Europe. We have written about how the east’s low wages, coupled with an excellent workforce, makes it an engine for growth. How serious is Macron, and what kind of options does he have to try to pursue this?
  • Japan: Japan’s Ministry of Defense will reportedly discuss whether Japan should acquire the ability to strike enemy bases in self-defense. Prime Minister Shinzo Abe has denied that he will allow this to happen. The deeper issue is what Japan will do if the U.S. doesn’t address North Korea or another problem more directly related to Japanese interests, such as China encroaching on the disputed Senkaku Islands.
  • ASEAN: After a weekend meeting, foreign ministers from members of the Association of Southeast Asian Nations issued a joint communique that was noticeably soft on China. Does this mean anything, or can we ignore it like most statements?
  • China: The People’s Bank of China removed 60 billion yuan in liquidity by allowing 310 billion yuan of securities to expire while providing 250 billion yuan in new liquidity through reverse repurchase agreements. Is this part of a larger trend? Does it tell us anything about the state of the Chinese economy?

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