Five ways to trade the G20?
Influential leaders from some of the world’s largest economies meet on an annual basis in the so-called G20 meeting. With Argentina currently holding the rolling presidency of the organisation, the 2018 summit is scheduled to be held in Buenos Aires on November 30th and December 1st. Representation is due from Argentina, Australia, Brazil, Canada, China, Germany, France, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States, plus the European Union.
The lead country sets the agenda for the key talking points at the summit, with the 2018 themes to include Governance, Agriculture & Food Security, Industrial Development as well as Economics and Investment. However if the 2017 event is anything to go by – which was very much encapsulated by that one photo of “Donald Trump vs the rest of the world” – the erstwhile themes on the table at the end of the month seem unlikely to present the key trading opportunities. Ultimately it’s a forum for the most powerful economic leaders to ask the awkward questions so here’s our five top thoughts on what the burning questions migh be - and where the resulting market reaction may be seen in Buenos Aires:
This long running saga risks escalation at any time. We’ve seen a slew of tariffs being imposed by the US on imports from China, although more recently – notably following a phone call between Presidents Trump and Xi – there was a great deal of speculation that a compromise would soon be found. Trump has instructed his cabinet to draw up terms of a deal, but if we don’t see any progress soon, will the US President be looking to use the tabling of an offer during the G20 as something of a statement? If he does, expect equity markets both in the US and across Asia to bound higher as a result.
With Angela Merkel having announced she will not be seeking re-election, there are questions over what happens next for Germany. Will another leader be able to hold together a ‘vibrant’ coalition representing a very diverse range of opinions, or will we see fractures exposed over where Europe’s economic powerhouse goes next? For years, Germany has taken a leading role in the Eurozone, but much of this has been unpopular with the electorate. From bailing out the struggling ‘club-Med’ members to stomaching very low interest rates for a long period of time, patience is arguably running thin. A leader popular enough to garner a majority might need to put Germany first and the Euro second. Suggestions of this could weigh on the common currency.
With EU leaders due to have met just over a week before the G20 summit to discuss the terms of any Brexit deal, will we see the UK being supported by its old foes, or being pushed into the long-grass? The Pound is at risk both from falling inward investment and the threat of a leadership challenge in Westminster, too. Supportive comments from other G20 participants over the new world the UK faces when it leaves the EU on March 29th 2019 could readily buoy the Pound.
By some accounts, how Brussels manages the Italian budget situation poses significant risks across the board. The threat of contagion from failing economies in the Eurozone crisis of almost a decade ago was frequently cited as being a drag on many corners of the global economy, not least the USA. Although the clock is ticking on the European Commission to come back with its response to Rome’s ‘ambitious’ budget proposals, failure to have reached a resolution before the G20 could well force this matter onto the table. With Brexit clearly in play and uncertainty over the future leadership of Germany, the European Union needs to galvanise its core. Awkward questions – quite possibly from the US delegation – over the threat being posed by Italy could see pressure being heaped onto the Euro.
With Saudi Arabia, Turkey and the US all in the same room, it’s going to be difficult to ignore the recent murder of Washington Post journalist Jamal Khashoggi. Riyadh has already pledged not to use oil supply as retaliation for any international sanctions in the case, but it has seen sovereign borrowing costs increase – which need to be funded from somewhere – whilst on top of this we have the impact of those fresh restrictions over Iranian exports punishing Tehran, yet simultaneously boosting the price of crude. President Trump is well aware of the fact that if oil prices go too high then this will damage the US economy – there’s already a string of country-specific carve outs over the Iranian sanctions. Will he use the G20 as a platform to finesse these, as hints at concessions here could at least help ensure crude prices don’t creep any higher.
The five scenarios outlined above all remain live trading opportunities in the run up to the G20 summit, but the related instruments could see heightened volatility over the weekend, depending on the tone taken by the world’s leaders. Whether you’re looking to profit from these events or just manage the risk on any open positions you’re already holding, it’s well worth being aware of what might creep onto the agenda.
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Too much uncertainly in the world