Market update: The G7 collapses to G6, traders prepare for the busiest week of the year

11 Jun

by Mihály Tatár

 

 

Good Morning!

 

  • Even compared to the low expectations, the G7 summit turned out to be very, very painful to watch: While Germany, France and Canada tried to ’train to behave’ the US President, or at least tried to appear as the adults in the room, Trump for his part tried making them look as unimportant losers compared to the significance of the North Korea – US summit in Singapure. (Actually, there is some truth to this, and it’s no wonder Japan’s Abe was the most respectful with Trump – living with nuclear missiles aimed at your island, protected by a navy-building China gives you a different perspective on steel tariffs. It’s also worth noting that Trump called for the inclusion of Russia at the meetings – and Merkel did not object on this one. The post- Crimea isolation of Russia is now officially over.) With the White House calling Canadian PM Trudeau a ’liar’ and Trump raging that the ’EU has 151 billion USD trade surplus’ with the US, so they have the means for more defense spending, the unavoidable conclusion is that the G7 will be de facto G6 in the future and the tariff campaign will continue after the Singapure summit is over.

 

  • Markets, for their part, moved little for now (SPX +0.31%, DAX -0.35%, Nikkei  +0.55%, EURUSD 1.18, US 10Y yield 2.95%, WTI 65.60, Brent 76.20 USD, Gold 1300 USD, EURHUF 319.50, EURPLN 4.279), apart from selling Italy, of course (MIB -1.90%, Unicredit -2.80%, Mediobanka -2.20%, Italian 10Y yield 3.13%), as the week is full of very important trading events from Wednesday’s rate-raising Fed meeting (what do they plan for the rest of the year?) to the ECB’s Thursday meeting (will they pretend things are great and talk hawkish to pressure Italy?), the Putin – Mohammed Bin Salman meeting on Friday (will everyone bow to US pressure to pump more oil?) and the result of the Trump- Kim summit. (The latter will be important from several angles, not just geopolitics: A success will be seen as an effective US-China cooperation as well, South Korea has a long-held dream of a land-transit through the rest of Eurasia, making its goods even cheaper, and, of course, the optics would be good for Trump before the November mid-term elections.)

 

  • It seems after Turkey, Pakistan had to cave in to the market pressure as well, and the central bank of Pakistan this morning devalued the Rupee by 5% (it now trades at 121.5 per Dollar.) As mentioned earlier, the question is not so much if Islamabad will need IMF assistance after the elections – it’s financies left the mathematical point of no return a long time ago – , it’s rather whether even the IMF bailout will be enough – given the hostile US – or whether the conditions will be politically viable at all.

 

Have a nice week,

Mihály

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