While traditionally a meeting involving all the nations, focusing on global issues like the environment, concerns over trade, conflict, and oil will overshadow a summit of the Group of 20 major economies in Japan this weekend, with attention focused on a meeting between the leaders of the United States and China, who are enmeshed in a protracted trade war.
However, while many investors are anxiously anticipating a deal, even one that would highlight the benefits of what both countries have to offer, President Trump may be unlikely to allow this to happen, according to experts. Rather than a cohesive trade deal, some experts see more stagnation taking place at the G20 summit, as more involved negotiations get fleshed out.
“With both sides expressing a desire to resume talks, we see increasing chances of some sort of ‘ceasefire,’ in which the two sides will agree to halt further escalation of tariffs and/or non-tariff barriers while high-level negotiations take place,” Barclays said.
“The cease-fire could include a commitment to not escalate trade and technology/investment-related tensions further, with the main structural issues being left unresolved,” Citi said. “Still, the China-containment strategy would likely follow, and the damage on the real economy from the tariffs-limbo is ongoing.”
With the markets having a record June recovery, after a brutal May selloff, the Dow is on pace for its best June since 1938 when it gained 24.26%, while the S&P is on pace for its best June since 1955 when it gained 8.23%. This meteoric rise, in conjunction with the Fed expressing the willingness to cut interest rates if necessary, offers the President little motivation to make any trade deal that is less than ideal.
“We think it will be difficult to bridge the gap because the strength of US equity markets and the Fed’s dovish turn have greatly reduced the pressure on the US to compromise,” BofA said.
Given those conditions, many analysts like Citibank, see the G20 meeting being a mere prolonging of the larger trade agreement, in essence a stalemate.
“We continue to expect a handshake between the US and China which could be as soon as in the G20 Meeting. The cease-fire could include a commitment to not escalate trade and technology/investment-related tensions further, with the main structural issues being left unresolved. Still, the China-containment strategy would likely follow, and the damage on the real economy from the tariffs-limbo is ongoing,” said Citi.
