Analysts at Nomura explained that, on Friday, G7 leaders are scheduled to meet in Quebec for the 44th annual G7 Summit.
Key Quotes:
“The timing of this summit coincides with President Trump’s increasing unpopularity in international circles. After the G7 finance ministers’ meeting last week, Japanese Finance Minister Aso stated that he felt sympathy for the US Treasury Secretary, which in our opinion shows how isolated the US is at the moment.
US trade tensions with China have been escalating through 2018, keeping financial markets on edge. However, in recent weeks there has also been a shift towards rising tensions with the US from G7 countries. President Trump imposed steel and aluminium tariffs on all other G7 member states and launched a probe into the possibility of tariffs on automobile imports (particularly relevant for EU and Japan). Finally, President Trump pulled out of the Iran nuclear deal, despite EU leaders urging him to remain in the accord.
Communication thus far suggests it is unlikely that any positive news will emanate from this week’s G7 summit. Based on our observations, there is a high likelihood that no joint statement will be agreed upon, as suggested by German and French leaders. This could keep the market on edge, which is continuing to price-in risks of an escalation of trade war. Discussions on the prospects of US autos tariffs are likely to be particularly important, and it is widely believed that any threats from the US will be taken negatively by the market. Ultimately, our US economists believe a broad tariff on autos imports is unlikely.
Positive news would contain any efforts to contain escalation (i.e., agreements to not impose further tariffs/ remove proposed duties). However, in the current environment, this seems unlikely.
Trade war concerns tend to be JPY positive. Volatility around the G7 Summit could hit long EUR/JPY positions. However, once the G7 Summit is out the way, assuming no significant escalation in trade tensions, long EUR/JPY positions could become more attractive again as the divergence between the ECB and BOJ widens further.”
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