Developments over the weekend surprised even the more skeptical commentators. President Trump’s initial threats of not attending the summit in Canada and snubbing the G7 altogether would have been less damaging to the Group of 7 largest economies.
The group was put together in 1973 to monitor economic policies amidst the oil crisis; initially, it was made up of the US, West Germany, France, and the UK. Italy and Japan joined in 1975 whilst in 1976 Pierre Trudeau of Canada, the current prime minister’s father, was also invited. More recently Russia joined the group in 1998, making it the G8 until it was ejected in 2014 post-Crimea’s annexation.
Mr. Trump’s assertion that Russia should be invited back raised contempt amidst the Group, yet Chancellor Merkel agreed during an interview with the TV channel ARD last night that a meeting between Putin and Trump would make sense. The Chancellor also admitted that the U.S. president wasn’t entirely wrong in pressing Germany to increase defense spending.
The recent spat between US, Canada, and the EU will continue as we are amidst deep negotiating tactics. As for the personal insults, “It’s not personal. It’s just business.” The torrent of insults between Trump and Kim over the past 12 months did not get in the way of initial constructive progress; the question is whether US’ allies are willing to play the same game.
What will be the market impact from the G7 summit? Probably not much. The EUR/USD, USD/JPY, and USD/MXN could behave as they have been the past couple of weeks, with elevated trade tensions but no cliff-edge moment in sight. Similarly, stock market corrections or bond yield rises are not expected on the back of the weekend’s developments. What this weekend proves is that unlike previous G7 meetings where members put a brave face and a shared communique despite internal fighting and disagreements, Trump is not willing to play that game.