When the leaders of the seven countries that represent 46% of the global GDP get together to negotiate policies and issue statements on trade, it’s inevitable that there will be some impact on the markets.
Some of it might be right away, some overtime. This time, we are expecting the meeting to conclude after the markets have closed in most of the world. Therefore, any immediate impact will probably happen over the weekend.
On the other hand, not everything coming out of the meeting is likely to be a surprise. In fact, most of the meetings of the leaders are protocol and will merely formalize what has already been discussed at lower levels and in the run-up meetings.
Perhaps the most salient agreement from the meeting is the global corporate tax proposal. But we already knew about that having been agreed on earlier on in the week.
So, what’s pending?
Most of the agreement is already out there
On Wednesday night (or early Thursday, depending on where you are in the world) a draft of the potential final communique was released.
These meetings typically don’t lead to ‘accords’, because that requires the consent of the country’s respective parliaments. So, they generally produce a “non-binding” memo. From that draft, we can get a pretty good idea of what will be the conclusion from the meeting.
Most of the attention will be on Covid. The media is likely to focus on issues such as the promise to deliver 1B doses to poor countries. And, more controversially, we can expect the media to demand a more thorough investigation into the origins of the pandemic. In fact, the EU’s von der Leyen stressed that in a speech yesterday.
Another factor that we initially anticipated to be discussed was the pending fishing issue between the UK and France (or, effectively, the EU). However, they resolved this before the meeting started.
This was an important step in dealing with tensions between the UK and the EU over the Northern Ireland Protocol. That said, the forum itself isn’t a venue for dealing with that particular issue.
What surprises could there be?
The market is likely pricing in a reaction based on what’s in the communique. It is already turning its focus to the other major gathering of world leaders next week in Brussels: The NATO summit.
So, if something unexpected comes out of the meeting, we will see an important market reaction.
This is not in the draft, but surely something that is on all of the G7 leaders’ minds, is how to deal with Russia. In fact, Biden will have his first meeting as President with Putin.
It’s possible that the issue of Crimea might come up again. We might also see them discussing the pending problems around Belarus and the vital oil pipeline which goes through it.
Another issue that wasn’t in the draft, but there have been some rumors about, is that the G7 might be looking to reach some kind of “global” agreement on incentivizing EV over petrol cars.
This would be in line with the Biden administration’s goals to reach a substantial shift in the automobile market by the end of the decade.
On the other hand, given the increased demand for semiconductors that EVs would imply, there could be some kind of agreement relating to diversifying chip manufacturing.
This could shake up the stock market a bit, especially if they discuss potential subsidies.