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G7 takes a firm line on China

Edward Bell - Senior Director, Market Economics
Published Date: 22 May 2023


The summit of G7 leaders in Japan concluded over the weekend with a focus on the ongoing war in Ukraine, who the leaders said they would support “as long as it takes,” as well as taking a firm stand on China, pushing for a “level playing field” for G7 companies and opposing any efforts to change the economic situation in the East and South China seas by “force or coercion.” Ukraine’s president, Volodymyr Zelenskyy, attended the summit to try and push nations like India and Brazil, who were also represented, to distance themselves from Russia. On macroeconomic issues, the G7 leaders cautioned that there was “heightened uncertainty” in the economic outlook while noting that inflation remained a challenge for many economies.

The debt ceiling standoff in the US remained unresolved as of the weekend as US president Joe Biden attended the G7 summit in Japan. Kevin McCarthy, the Republican speaker of the house, said the administration was moving “backward” on negotiations which could suggest more fraught negotiations to occupy market attention this week. Janet Yellen, the US Treasury secretary, warned earlier that the Treasury may run out of funds as early as June 1.

Federal Reserve chair Jerome Powell said the Fed could “afford to look at the data” ahead of the mid-June FOMC meeting, watering down anticipation in markets that the Fed would again lean toward another hike after several Fed speakers seemed to support it. Chair Powell again acknowledged that tighter credit conditions as a result of stress in the financial system would “weigh on economic growth, hiring and inflation” and that policy rates “may not need to rise as much” as a result.

Today’s Economic Data and Events

  • 18:00 EC Consumer confidence May: forecast -16.8

Fixed Income

  • US Treasuries dropped for a second week running though comments from Fed chair Jerome Powell at the end of the week helped to sink an intraday move higher in yields. The 2yr UST added 28bps last week to settle at 4.2659% while the 10yr UST yield added 21bps to 3.6726%. Markets are still pricing in about a 1 in 5 chance of a hike at the June FOMC.
  • Emerging market bonds generally closed lower last week, in USD-terms, with local currency markets mixed. A Bloomberg index of UAE USD-denominated bonds drifted lower throughout the week though spreads did tighten over the five days.


  • The end of the week pushed the US dollar lower against peers though not enough to unwind overall strength for the week as a whole. EURUSD rose by 0.3% on Friday to close at 1.0805 though was down 0.4% for the week while GBPUSD added 0.3% on Friday to 1.2445 but fell by 0.1% on the week. USDJPY ended the day on Friday lower by 0.5% at 137.98 but was still up by 1.7%.
  • In commodity currencies there was some slightly better performance. USDCAD closed near unchanged at the end of the week but was lower by 0.3% at 1.3505 from a week earlier while AUDUSD added 0.4% on Friday to help keep the pair roughly flat on the week. NZDUSD added 0.9% on Friday to sett at 0.6283, taking its weekly gain to 1.5%.


  • Fed chair Jerome Powell’s comments that suggested the Fed was leaning toward a pause in June failed to give any lift to equities at the end of the week. The Dow Jones dropped by 0.3% on Friday while the S&P 500 sank by 0.1% and the NASDAQ fell 0.2%.
  • European markets were generally stronger though. The EuroStoxx 50 index added 0.6% at the end of the week while the FTSE gained 0.2%.
  • Equity markets in the UAE fell on Friday with the DFM down 0.3% and the ADX dropping nearly 0.4%. On the Tadawul overnight, the index closed near unchanged.


  • Oil prices had their first weekly gain in the last five weeks as Brent futures added 1.9% to settle at USD 75.88/b and WTI rose by about 2.2% to close at USD 71.55/b. Both contracts were lower on Friday by about 0.4%.
  • The US oil rig count fell by 11 rigs last week as E&P firms keep their focus on profitability and capital discipline. US oil production has been roughly flat near 12.1-12.3m b/d since mid 2022.