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All Eyes on G7

The G7 summit is taking place this weekend, in Hiroshima. The agenda will be packed and there’s almost certainly going to be more subjects that there are agreements.

We think the key themes are as follows: Ukraine – there’s definitely going to be discussion about sending fighter jets to Ukraine and though there’s mixed opinion on this amongst leaders, they’ve eventually yielded to every other request, so we doubt this one will be different. Joe Biden will be concerned that sending planes will be an expensive and long-term endeavour and with finite resources granted by Congress to support the Ukrainians, he’d probably rather end more readily available (and less expensive) munitions, whilst letting the Europeans supply F-16’s by granting them ‘re-export licenses’ and ensuring a ready re-supply is available to sell to US allies. Volodymr Zelenksy is set to attend the summit and will be keen not only to persuade G7 allies to do more, but also non-G7 members who are attending, such as India and Brazil.

The UK are set to increase the number of Russians on the sanctions list as well as ban the import of Russian diamonds. Copper, aluminium and nickel and will hope that other G7 nations will follow suit. Russian diamonds are a $4bn a year industry but, as plenty of films will allude to, controlling source of origin of diamonds is notoriously difficult to achieve. Banning or limiting Russian exports is having an effect though and the US are reporting that Russian oil revenues are down 43% in the year to April, compared to the year before, despite them having pumped at least the same volume of product – which the US claim is forcing the Kremlin to make tough budget choices.

 

Military and security conversations won’t just be confined to Ukraine though and Japan will be keen that there is a good amount of discussion around security in the Asia-Pacific region, particularly as relations with China and the G7 aren’t too great at the moment – one handed clap for Liz Truss who managed to completely undermine current UK diplomacy by giving a speech in Taiwan this week, much to the chagrin of both the UK and China – but given Japan is the geographically closest G7 member in the region, it may become an uncomfortable reality for them to have to take a more prominent position, both financially and rhetorically, if they are to convince other members to follow suit.

The side-lines of the G7 are almost as important as the main meetings and no doubt Rishi Sunak will be moving on this week’s headlines from the UK motor industry when he talks with European heads of state. The “Rules of origin” conundrum that electric vehicle manufacturers are going to find themselves hamstrung by at the beginning of 2024 will need to be resolved, or at least aim to be resolved, well ahead of December 31st and a strong starting point would probably be this week and getting something in ahead of the summer political break.

China-CAR Summit Looks to Increase Beijing’s Influence in Region

Xi Jinping is on the second and final day of the China-Central Asia Summit in Xi’an, where China is looking to build closer ties with the Central Asian Republics as recent geopolitical undercurrents are increasingly changing the regional landscape.

While historically, Russia has tried to maintain close ties with Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Turkmenistan, their waning influence in the region – in light of their invasion of Ukraine – has formed a geological fault line which China are keen to fill. According to the FT “Russia has begun to lose influence across the former Soviet Union amid widespread disquiet over the war in Ukraine. Moscow has also lost its traditional peacekeeper role, being notably absent during border skirmishes between Kyrgyzstan and Tajikistan last year.”

The symbolism of hosting the summit in Xi’an is hard to understate given that the ancient Chinese town was a key stopover on the Silk Road, with merchants continuing their onward journey through the CAR region. 21st Century China has of course spent some $1tn on the Belt and Road Initiative since 2014, spending significant sums of money in the region. Indeed, just two years prior Xi also launched Beijing’s “March West” which again looked to create greater ties in the region. China remains the largest buyer of gas from the region and is keen to engage in further trade talks in relation to energy, commodities, and food. Accordingly, Xi stated that “to bolster our cooperation and Central Asian development, China will provide Central Asian countries with a total of 26 billion yuan ($3.8 billion) of financing support and grants”. With all eyes on the G7 this weekend, Beijing is keen to demonstrate its intentions to widen its sphere of influence as shifting geopolitical fault lines offer up opportunities.

Starmer’s Would Seek to Relax EU Trade Barriers If Labour Win GE.

During a speech yesterday, Sir Keir Starmer announced that if Labour were to win the next general election, he would seek to relax trade barriers with the EU within the first 18-months. The Labour leader is seeking to making it easier for British farmers to export into the single market, and likewise European farmers to sell into the UK market. It is understood that the same would be done for medicines and animals. This is the latest indication that the Labour Party would look to renegotiate the UK’s Brexit trading relationship, though the party will remain cognisant of wanting to recapture Red Wall votes and thus tread carefully.

UK Consumer Confidence Rises

This morning’s latest data release from GfK indicates that consumer confidence has risen to its highest level in a year, in line with expectations. This marked the fourth consecutive rise in the index and is a continuation of the upward trajectory since it hit lows in January 2023 and September 2022. In terms of different indexes that GFK measure, their Personal Financial Situation for the next 12 months index recorded an improvement having risen five points from last month while expectations over the general economy rose four points. Here, the client strategy director at GfK said: “The overall trajectory this year is positive and might reflect a stronger underlying financial picture across the UK than many would think. But everybody must hold on tight as it could still be a rocky ride out of these tough times.”

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