The results of the weekend’s G7 meeting were completely unsatisfactory for Trump; the president bashed all the allies accusing them that they are pursuing welfare related only to their countries –  increased trade surplus and security. Markets seemed to be slow to take into account the political shock, if one can call it so. Safe heavens in the foreign exchange market surprisingly posted decline against the greenback though it is unlikely that the drop will be sustainable.

The personal account of the US president’s unsuccessful negotiations has long been growing, and it is unlikely that wonders of diplomacy will be accomplished in the meeting with Kim, who also features a tough political stance. Trump left the meeting early and refused to issue joint communication, which points to the fragility of the foundation upon which the US friendship with the allies is built, which Trump continues to shake.

The communiqué that appeared after the meeting clumsily tried to hide the divisions, while it was said that the leaders of the USA, Canada, Britain, France, Italy and Japan agreed on the need to support “free and fair reciprocal trade”, condemning protectionism in the strongest possible terms.

The shaken relationships of the partners after last weekend will have a long way to go before improvement can be achieved and they are likely to periodically give a shake to investors hungry for risk. While this has not yet led to specific threats from either side, the degree of discord suggests that Trump will again seek ways of pressure through tariff levers. Trade policy can take an extreme degree of protectionism, which in turn will put the tit-for-tat tariff back on the front line and can possibly unleash a global tariff war.

Trump also raised the issue of the disproportionate costs of Western countries for security, in particular, the maintenance of NATO’s North Atlantic alliance. According to Trump, the United States bore most of the costs of maintaining the alliance, while still losing in trade with its allies; Populism “in all its glory.”

The tension between the US and Canada reached its apogee after Trump’s advisor Larry Kudlow said that the US has been stabbed in back by Premier Trudeau, who dramatically changed the tone of rhetoric at the meeting, which could potentially weaken Trump’s position before the talks with the DPRK leader; what is likely one of Trump’s biggest achievements in foreign policy.

Italian and European stocks added in value after the announcement of the Italian Minister of Economy that the country should remain in the EU, hinting that Italy will adhere to the recommendations of the European Union in solving fiscal problems.

Among the economic data on Monday, the dismay for Pound traders come from production output in UK, which fell to the lowest level since 2012. This indicates a weakness in the foreign and domestic demand for UK goods, emphasizing that the slowdown in growth in the first quarter of 2018, can stretch for a longer period. The data diverge from the comments of the Bank of England official, who assured that the economy has successfully overcome the difficulties of the first quarter.

The May meeting of the Bank of England did not bring the welcome result in the form of an increase in the key rate, because according to the bank, the economy has not yet been able to find firm ground for growth. Contraction of the production averaged 1.4% MoM, surprising even the economists with the most pessimistic forecasts, which expected an increase of 0.3%. The pound rolled back half a percentage point against the dollar to 1.3350, but slightly changed against GBPJPY, which is trading near the opening.

This suggests that weighing the prospects for yields of the US and Britain, the US preponderance is obvious, but the preponderance of the Japanese economy is not so significant. In other words, the belief in the dollar before the Fed meeting is quite strong, despite political instability. At the same time, we see a slight increase in EURUSD and this indicates that the meetings of the two largest central banks has created considerable uncertainty and may become a turning point in EURUSD, most likely to reach a medium-term growth back to 1.20 and higher, as the transition to the normalization of the policy of the ECB has a greater potential for the growth of the euro than the increase in Fed rate for the dollar rally.

For the oil market, the uncertainty of US trade with partners has become an additional factor of decline, as it disrupts the prospects for growth in energy consumption. Both grades have lost more than one percent today and are likely to continue to decline due to the pressure of expectations regarding the OPEC meeting. Levels of 62.50 for WTI and 73.50 for Brent are short-term targets for bears, from which it will be possible to expect bullish correction.

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