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Watch List: Feb. 6, 2018

U.S. stocks, Syrian military responses, Uzbek shakeups, Chinese reforms

|February 6, 2018

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.

  • U.S.: The echoes from the collapse of U.S. stock prices are being heard around the world. This isn’t completely surprising. At some point, a U.S. recession is inevitable. Rarely has the country gone this long without one. It’s just a matter of timing. So the most important thing to figure out is whether the events of Feb. 5 were a momentary correction or the start of something bigger. Either way, we need to figure out how it will affect places like Europe, Russia and China. After all, the United States is still the world’s engine of consumption, and problems there tend to spread elsewhere. Our next step should be to cast a wide net. Let’s identify vulnerable asset classes. Let’s examine European, Chinese and Russian exposure to a U.S. recession. Let’s break down U.S. economic data by region to see if some are suffering more than others and what, if any, political consequences the data has in store.
  • Iraq: Iraqi security forces are preparing for an operation in the Hamrin Mountains, Reuters reported Feb. 5, citing Iraqi officials. The mountains lay between Khanaqin, near where six Sunni fighters were reportedly killed Feb. 5, and Kirkuk, where the Islamic State said it would soon resume operations. The thing is, local reports suggest that the six Sunnis were actually members of the Shiite Popular Mobilization Forces. This is exactly the type of behavior we would expect of IS before it embarks on a campaign. Before we can confidently say the group is back to its old tricks, we need to know where its fighters are located and what they are capable of. We need to find out if the deceased fighters are Sunni or Shiite.
  • Syria: The Syrian government had deployed new air defenses and anti-aircraft missiles in Aleppo and Idlib, according to a commander loyal to the government in Damascus. If this is true, it is clearly a defensive measure against the Turkish incursion into Afrin. The Syrian government has yet to respond to Turkey’s military forays, but there is no reason to suspect it never will. Is the report true? If so, what systems have the Syrians deployed?
  • Uzbekistan: In Uzbekistan, special units that had been transferred to the National Security Service from the Interior Ministry are now reportedly being sent back to the Interior Ministry. Last week, the head of the NSS resigned. This has all the makings of a major reorganization. For now, this is just something to keep an eye on. Sooner or later, though, we need to figure out if this is the beginning of a power struggle or the aftermath of a power struggle already won.
  • Israel: One of Israel’s most popular newspapers has reported that China reneged on some of its investments. The report is unclear on China’s motivations but has listed three possibilities: Israeli regulations, Chinese restrictions on investment and the relocation of the U.S. Embassy to Jerusalem. If it’s the first reason, this is a non-story. If it’s the second reason, this is a Chinese economic issue to explore. If it’s the third reason, it tells us something about China’s attitude to a region that is increasingly important for its energy needs, and we need to find out what it is.
  • Pakistan: Pakistani Prime Minister Shahid Khaqan Abbasi recently gave an interview to Bloomberg, now making the rounds in Pakistan, in which he said tensions have eased between the government and the armed forces. He also said increased numbers of U.S. troops wouldn’t solve the problem in Afghanistan and that Pakistan would continue to keep open U.S. supply routes and would maintain intelligence cooperation with the United States. This isn’t the kind of thing you usually hear from a country whose relations with the U.S. have supposedly soured. What’s going on?
  • China: For the 15th consecutive year, the Chinese government’s No. 1 document – the first policy document released by the Central Committee of the Communist Party of China and the State Council – is related to agricultural policy. This time it covers a “rural revitalization” program meant to once and for all improve the lives of those living in the countryside, who have yet to benefit from China’s technological savvy, rapid urbanization and economic growth. Previous documents have tried and failed, but we still need to find out how this one differs from the others – if, in fact, it differs at all.


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