Top Issues to Be Discussed at G20 Summit, Related to Financial Markets
Skerdian Meta • 4 min read
The G20 summit which is being held in Osaka, Japan has started yesterday. This is a really important summit because there are quite a few hot issues to be addressed at this meeting. Although, all G20 summits have been important recently, since Donald Trump came to power. But now there are some new issues which have precipitated recently, such as the increasing slowdown in the global economy. One of the main issues is global warming which will is relevant right now since Europe is getting scorched this week with temperatures up to 40 degrees in Germany and 45 degrees in Spain. But this issue has lost relevance since Trump came to power.
Although, other hot topics will be in spotlight in this summit, such as the geopolitical tensions and the confrontation between Iran and the US, the slowdown in the global economy, the trade war between the US and China, Brexit, North Korea and the grudge that Donald Trump has with the EU and other European countries, which will resurface as auto tariffs on European car manufacturers that Trump has been planning.
The conflict between Iran and the US has precipitated in recent months. The skirmishes have been going on for a long time and many were expecting things to get to this point, sometime. The rhetoric has been heating up for months but the escalation came after two Oil tankers were sunk in the Strait of Hormuz. US didn’t directly blame Irab, but they let us know that. Then a US drone was shot which Iran said was inside its territory, which also is a red line for Iran.
The US was about to declare war and attack, but Trump pulled out at the last minute, because the casualties would be disproportionate and that avoided a major conflict. Oil prices have been increasing mainly because of this issue. Yes, OPEC+ will surely extend production cuts, but the slowdown in the global economy and the trade war have a bigger impact on the supply-demand chain, hence the bearish reversal in Oil in the last two months. But this conflict has helped Oil, in the last two weeks.
Iran is not a participant in this summit as far as I know, but Russia and China will represent it without a doubt. China imports most of Iran’s Oil while Russia already jumped on Iran’s side after the threat of war from the US. So, I don’t think that the US will escalate this conflict further and if we hear some positive comments about that after Trump meets Putin and Xi, then Oil traders will concentrate more on the global economic slowdown and Oil will likely turn bearish again.
Global Economic Slowdown
The slowdown in the global economy started at the beginning of 2018 after the tariffs war commenced and it accelerated each month, until it became obvious by the end of last year that the major economies of the globe were weakening and that the economic expansion of the last several years was sort of over. The global economy took a break in Q1 of this year and we saw some promising numbers in the economic data, but the weakness resumed again and now different sectors of different major countries are in recession.
The US economy was holding up well. Now many analysts are predicting that the global economy might as well slip into recession in the second half of this year. Besides the trade war, another big reason for this economic slowdown has been the monetary tightening of major central banks, especially the FED. The world economy has been on life support with a lot of cash injection since the financial crisis in 2008. So, one of the factors which might help now is the central banks turning their monetary policy loose again, which they are doing. Different central banks have cut interest rates now, the European Central Bank is expected to cut interest rates twice this year and everyone is expecting the FED to cut rates next month after hiking them many times in the last three years. With such commitment, stock markets are bound to turn bullish again after being sort of bearish in the last couple of months.
US-China Trade War
The trade war that started at the beginning of last year, came close to a solution at the start of this year, hence the improvement in the sentiment in financial markets. But, it escalated once again two months ago after China backtracked on some of it’s promises to the US. As a result, Donald Trump applied another set of tariffs to Chinese exports to the US and was threatening to escalate things further.
Trump and Chinese President Xi are still in a meeting, but the comments so far have been positive. Al Jazeera posted comments from Donald Trump, with the main comment being “Relations with China are ‘back on track”. This would be such a relief for financial markets. Trump added that “we had a very, very good meeting with China. I would say probably even better than expected. The negotiations are continuing”. So, things are looking brighter once again. This should be a bonus for commodity currencies, so watch out for the uptrend in [[AUD/UD]] and NZD/USD to continue next week.
Brexit is another hot issue which affects the UK and Europe and the rest of the globe as a result. Britain and the EU are both participants in this meeting, but I haven’t heard any news so far. The UK is in the process of electing the next Conservative leader and then the next Prime Minister, who most likely will be Boris Johnson. The EU has closed the deal and doesn’t want to open negotiations again, while Boris Johnson is giving some contradictory signals. If he takes the Prime Minister chair, the EU might be persuaded to start some flash negotiations again so the UK doesn’t end up with a hard Brexit.
If we hear some positive comments from the EU regarding opening negotiations again, or just adding some options regarding the backstop on the Irish border and on trade after the separation, then it is likely that the GBP will turn bullish for the weeks and months to come, so we have too keep an ear on this issue. If the meetings between Trump and Xi end well, as the comments suggest, then it will be a tough hit for safe haven assets such as GOLD and the JPY. Watch out for a big bullish gap in [[USD/JPY]] on Monday open and a bearish gap in Gold.