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The G20 Summit is an international forum for the governments and central bank governors from 19 countries and the European Union to discuss global economic challenges. Non-member countries can also be invited to attend the summit. The Group of Twenty nations attending the summit represents more than 80% of the global GDP, which is why it is one of the most important events for the financial markets.
In the light of mounting geopolitical risks, and rising threats of protectionism, these face-to-face communications about pressing global economic and financial issues will be of utmost significance.
Japan will take on the G20 chair and the main themes for the summit will be as per the following:
Aside from the main event, many leaders also hold side meetings. This time, the attention will be on President Trump and Xi meeting. Investors had a breather on the news that the meeting between the leaders of the world’s largest economies will actually take place.
Both parties are facing mounting pressures to reach a deal. In the US, farmers are being hit the hardest from retaliatory tariffs from China, which are causing some political backlash for President Trump. China, on the other side, is trying to sustain growth.
While it is “unlikely” that both leaders will agree on deep structural differences at the summit, it remains a faint possibility.
It is hard to foretell how the one-to-one meeting will go and how President Trump will handle the trade talks. It may highly depend on the impulses of the US President.
The Probable Scenario
Investors are expecting a similar “show” that took place in Buenos Aires – some kind of cease-fire and promises to initiate more negotiations. Investors are aware of the long road ahead for a trade deal. Any signs of de-escalation of trade tensions will bring some momentary relief because as long as there is some sort of dialogue without tariff threats, it will be positive for markets.
The populist parties generally come with disruptive policies which result in a spike in economic and financial volatility. Bloomberg reported that around 70% of the world’s most important economies are under the control of populist governments or non-democratic regimes.
While this forum is supposed to be a powerhouse for global trade and investment and the associated global economic challenges, the increasing number of populist leaders may make it difficult for leaders to find unity.
The tensions between the US and Iran are set to loom large. Allies and rivals of the US criticized the last-minute pullback on Iran strikes. We note that President Trump did not lose time in telling other countries why should the US protect the shipping routes for other countries when the US has become by far the largest producer of energy.
President Emmanuel Macron plans to discuss the current flare-up with President Trump as the EU is increasingly concerned over the risk of conflict. We expect the discussions around the Iran risks to gather some attention as well.
It is unlikely that the Hong-Kong protests will be discussed at the summit. Beijing could not have been clearer when it says it won’t allow the protests to be brought up at the G20 as no foreign force has the right to interfere in its domestic affairs.
The stock market is in a similar stage as it was back in 2018 ahead of the summit. The announcement of the meeting between China and the US at the summit had buoyed up the stock markets at a time when major central banks turned dovish as well.
On Monday, we saw the hopes of trade progress waned, and stock markets struggled to find a firm direction. We expect the shadow of the G20 meeting to remain on the stock markets.
Would stocks rally after the G20 summit as it did after the last summit back in December 2018?
As of writing, the US Treasury Secretary, Steven Mnuchin comments raised hopes of trade progress:
‘We were about 90% of the way’ on China trade deal, and there’s a ‘path to complete this.’
However, President Trump’s comments were less optimistic, which temper the “90% complete” remarks. It is increasingly difficult to rely on the messages coming from the White House. Earlier this week, we saw President Trump ramping pressure on Iran to later pullback the strikes on the country at the very last-minute which prompted remarks from both allies and rivals.
The incoherence in the trade messages forced investors to navigate the markets cautiously. Stocks are finding “cautious” upside momentum while investors are also pouring money in metals. Gold reached a high of $1,439 this week.
Leading up to the G20 summit, it is hard to see how can a trade deal be negotiated in the next couple of days or at the summit, but investors expect a hold off on the next round of tariffs and a promise to return to the negotiable table.
*Please click on the link for below for the list of the G20 members and the invited countries and international organizations that will be present in Japan.
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