US President Trump's weekend rampage across the geopolitical stage has caused widespread consternation but the market response is restrained thus far with most asset classes treading water and awaiting further developments.
The G7 meeting (which some are dubbing G6-plus-one) saw Trump demanding the readmission of Russia, refusing to endorse the joint statement and picking a fight with Canada's Justin Trudeau, says John J Hardy, Saxo's Head of Forex Strategy. "As Raoul Pal says we're basically seeing the unwinding of the post-WWII global order in geopolitical terms. This is a huge shift," Hardy says.
However, the immediate market takeaways are a bit minimal with the Canadian dollar opening a tad weaker on uncertainty.
As far as equities are concerned, the most important issues is that Trump is planning to impose tariffs on imported auto parts. "You should watch the German and the French manufacturers as these would be hit hardest by this" says Peter Garnry, Saxo's Head of Equity Strategy.
Elsewhere in market news, Italy's new finance minister says he wants Italy to stay in the euro and he also wants to reduce the country's debt. Hardy points out that these tasks seem at odds but nevertheless, Italy's 2-year yield is opening 40 basis lower, which is quite helpful for the euro ahead of this week's European Central Bank meeting. For rate expectations stateside, 85% to 90% of the market believes that this week will see the Fed raising interest rates.
On Brexit there's an important vote coming up which could become an existential flashpoint for Theresa May's Tory government should sufficient of her party colleagues vote against it.
Finally today, it'll be a busy week also for commodities with important data releases from Opec and the EIA and, as Ole Hansen, Saxo's Head of Commodity Strategy says, "a rise in political meddling, making it very difficult to gauge where crude oil is going next".
Gold remains glued to $1300/oz as a softer dollar and geopolitics offset nervousness ahead of the June 13 Fed rate hike. A break of either $1286 or $1308 would likely determine the near-term direction, Hansen concludes.
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.