The annual G7 Summit kicks off today with the market’s eye on President Trump and his peers from the world’s wealthiest industrialized nations as they line up on opposite sides of pressing global issues.
Hosted in Quebec, the Group of Seven meeting has hot-button economic issues including tariffs, Iran sanctions, climate change and other issues on the agenda. On most counts, Trump will find himself at odds with the other six heads of state in attendance. And it will represent the first official opportunity those leaders have to express their disagreement formally.
A lack of fresh economic data and concern over the three-day G7 prompted global financial markets to trade off early Friday. The dip in equities pushed Treasury yields back off their midweek high of nearly 3 percent, back down to 2.9 percent in early trading before recovering some mid-morning to 2.93 percent.
Background on the G7
The Group of Seven, commonly referred to as the G7, is a group of the world’s seven largest advanced economies. It meets annually for a multi-day summit including heads of state and key lieutenants to discuss major world economic issues and set policy goals. The G7 is made up of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The European Union also is represented and guest nations are sometimes invited to attend.
These countries account for more than 62 percent of the world’s net wealth and about 46 percent of the world’s gross domestic product.
The G7 has become an annual opportunity for these nations, usually as allies, to deal with pressing world matters. In 2014, for example, the group cast out Russia from the talks over its annexation of Crimea (though Trump on Friday advocated the Kremlin be reinstated). The event rotates to different locations each year as different members play the role of host. The U.S. will host again in 2020.
Issues in 2018
This year, most of the G7 focus is on Trump and his differences with the other world leaders on key issues such as trade and foreign policy. Many observers believe Trump may find himself on an island at the gathering.
This week, French President Emmanuel Macron said he would not sign the annual joint statement at the conclusion of the summit unless progress on trade and other issues is made. He also indicated he’d be willing to sign a joint statement with six leaders, leaving President Trump off the statement.
Meanwhile, Canadian Prime Minister Justin Trudeau and officials from the EU spoke out against new tariffs from the U.S. on Canadian and European steel and aluminum. And German Chancellor Angela Merkel has promised to challenge Trump on environmental issues.
“The meeting this week will be by far the most dysfunctional G-7,” Ian Bremmer, president of the Eurasia Group, a political-risk consulting firm, told Bloomberg this week.
White House economic adviser Larry Kudlow downplayed the controversy on Wednesday, calling it a “family quarrel.”
As for Trump, the U.S. leader responded to his critics on Twitter the night before the summit, tweeting, “Please tell Prime Minister Trudeau and President Macron that they are charging the U.S. massive tariffs and create non-monetary barriers. The EU trade surplus with the U.S. is $151 Billion, and Canada keeps our farmers and others out. Look forward to seeing them tomorrow.”
Market reactions leading up to the G7 this week underscore what we’ve been discussing all spring. Bond yields and interest rates are on an upward trend, but facing headwinds created by geopolitical issues. Expect the outcomes of this weekend’s summit to follow the same theme. Monday’s reaction to the weekend events should be interesting.