What We're Watching Today is 1,144 words and a 7-minute read.
Global: Impact on the global economy of the US Federal Reserve rate cut
The Fed's decision to unwind its most recent economic tightening cycle is expected to be felt around the world.
Our Take: Central banks around the world have been waiting to see the size of the rate cut, as it signals the latest US assessment on taming inflation and risks of recession. The jumbo cut will push more liquidity into the market and reduce pressure on other central banks to maintain higher rates. A soft landing for the US economy bodes well for the global economy, as a strong US economy can lift other economies. Borrowing costs in dollars will go down. Lower interest rates could also weaken the dollar, pushing up the price of other commodities, such as gold.
Europe: Far-Right Austrian political party set to win parliamentary elections
Austrians will vote on September 29 for a new parliament, and the far-right Freedom Party (FPO) is positioned to win.
Our Take: FPO is not expected to win an absolute majority but will need a coalition partner. The center-right Austrian People's Party (ÖVP) is a likely candidate. Depending on the election outcome, it is also possible that ÖVP, center-left Social Democrats (SPO) and another small party could form a coalition to keep the FPO out of government, especially if Austria's president Alexander Van der Bellen does not give the FPO a mandate to form a government. This would be unprecedented and holding the coalition together would be difficult from the outset. The FPO has been represented in the Austrian government on three occasions; in 2000, the EU boycotted its representatives. Its participation has since been normalized, with the FPO winning the European Parliament elections last June. The FPO leaders say the party is focused on Austria's "neutrality" and its agenda is labelled "Fortress Austria. Fortress of Freedom." The FPO opposes sanctions on Russia. It is anti-immigrant and supports "remigration – returning people to where their families originally came from." In the European Parliament, the FPO has already aligned with the Hungarian-led Patriots for Europe bloc, sharing the goal of transforming the EU from within. The FPO in government in Vienna will add a voice to the dissenters in Brussels, seeking changes to EU policy towards Russia and Ukraine, and the EU's new asylum and migration pact.
Read More: Reuters, Financial Times [paywall]
Middle East: Fear of ground war on Israel-Lebanon border grows
Lebanese leaders called Israeli attacks and pager explosions an "act of war" and vowed the Hizballah will retaliate, raising worries of a broader regional war.
Our Take: The threat comes days after tens of Hizballah affiliates and civilians were killed in unprecedented exploding pager attacks on Tuesday and Wednesday and Israel conducted air raids deeper into Lebanon. US Secretary of Defense Lloyd Austin told officials in a Monday Pentagon meeting that he feared Israel would soon launch a threatened ground offensive in Lebanon. After months of slowly escalating conflict, Israel now appears to be on the cusp of an invasion, reportedly moving several thousand soldiers to its northern border, signs that Israel could be planning a small-scale invasion in coming days or weeks.
Read More: New York Times [paywall], Wall Street Journal [paywall]
Asia-Pacific: 10-year-old Japanese schoolboy in southern China dies after stabbing
A 10-year-old Japanese student who was stabbed near his school in the southern Chinese city of Shenzhen has died, officials in Tokyo announced on Thursday, asking Beijing to provide more details of the incident and take precautionary measures.
Our Take: The recent stabbing occurs against a backdrop of fraught Sino-Japanese relations, fueled by historical grievances and territorial disputes. Coming just months after another knife assault at a bus stop for a Japanese school in Suzhou, the incident underscores an emerging pattern of violence against Japanese citizens. Highlighting the fragility of the economic and diplomatic relationship between Beijing and Tokyo, both nations will need to address underlying tensions that may impact future cooperation and stability in the region.
Read More: Associated Press, Nikkei Asia [paywall], Pew Research Center
Africa: Sudan's warring parties announce openness to peaceful solutions
Sudan's army and paramilitary Rapid Support Forces (RSF) stated that they are open to peaceful solutions to a civil war they have been fighting for over 17 months, responding to US President Biden's call for warring parties to re-engage in peace talks.
Our Take: The recent statements by Sudan's army and the RSF signaling openness to peace talks offer a glimmer of hope amid the devastating conflict. However, given the ongoing blame-trading between the two factions and their failure to outline concrete steps of action, the path to lasting peace remains uncertain. The conflict has caused over 12,000 deaths and is exacerbating a dire humanitarian crisis, with millions displaced and at risk of famine. The continuation of violence threatens Sudan's stability and risks destabilizing the wider region, particularly if humanitarian access continues to be obstructed.
Read More: Reuters, New York Times [paywall], Council on Foreign Relations
Trade & Compliance: China sanctions US firms for selling arms to Taiwan
The Chinese foreign ministry on Wednesday announced sanctions on nine US defense contractors in relation to Washington's approval of arms sales to Taiwan earlier in the week.
Our Take: China's imposition of sanctions on US defense contractors over arms sales to Taiwan signals Beijing's continued efforts to dissuade US involvement in Taiwan's defense, which China views as a violation of its sovereignty. While these measures are unlikely to halt US arms deliveries to Taipei, they could strain China-US diplomatic and trade relations further, and risk catalyzing more opposition from Taiwan. For businesses, this development highlights rising risks in sectors involved with military or strategic industries, with the potential to complicate operations in the region.
Read More: Associated Press,South China Morning Post [paywall]
Climate Change: Extreme weather has placed the San Bernardina Mountains at the center of California's insurance crisis
The New York Times reports that in the San Bernardino Mountains, as many as three-quarters of homeowners cannot buy home insurance policies from private insurers, and are enrolled in the Fair Access to Insurance Requirements (FAIR), the state's last-report insurance plan.
Our Take: Californian residents are facing the difficult choices of living in areas prone to wildfires and other extreme weather-related events, with significant impact on their ability to obtain insurance. With insurance companies limiting their coverage due to financial losses, the risks are being passed along to residents in the form of state-backed coverage that costs more and provides less coverage. FAIR, however, risks being underfunded if claims spike due to major wildfires. In the medium term, increased costs of living in high-risk areas will reshape development and demographics trends. In the short term, communities impacted by the major wildfire earlier in the month will have to choose between rebuilding or relocating.
Read More: New York Times [paywall], Politico
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