June 8, 2018 / 7:43 AM / 6 months ago

Daily Briefing: G7 - and then there were six

LONDON (Reuters) - The G8 group of major powers became the G7 in 2014 when Russia was frozen out of the club for its annexation of Crimea. Now France's Emmanuel Macron suggests Donald Trump's trade isolationism could turn it into a de facto G6: "We don't mind being six, if needs be", he told reporters ahead of a Quebec summit starting today.

Canada's Prime Minister Justin Trudeau greets French President Emmanuel Macron upon his arrival on Parliament Hill in Ottawa, Ontario, Canada, June 6, 2018

Already the six non-U.S. finance ministers from the 43-year-old talking shop broke with its tradition of consensus-seeking last week by rebuking Washington over its new metal import tariffs; Trump meanwhile is going into the meeting in combative mode, lashing out at France and hosts Canada over their trade policies.

Both Macron and Justin Trudeau have both established warm personal relationships with Trump, with public displays of affection including hugs, kisses and even one mutual grooming incident (Trump's removal of dandruff from Macron's suit): Body language-watchers might enjoy looking out for any contrasts this weekend.

The EU's Brexit negotiator Michel Barnier is expected to give a fuller reaction today to British PM Theresa May's compromise plan to prevent a new post-Brexit trade border between Ireland and Northern Ireland.

She managed to avert a showdown with Brexiteers at home by confirming that Britain "expected" to be able to free itself from EU customs arrangements by 2021, but the question is whether the EU side sees that language as establishing a time limit or not - Dublin in particular insists any such backstop must be in place until and unless a better solution is found.

Separately, an anti-Brexit group backed by billionaire financier George Soros is due to launch its campaign for a new referendum on Britain's departure from the European Union in London today.

Romania's top court will rule in the trial of Social Democrat leader Liviu Dragnea on charges of abuse of office, a case that could weaken the country's most powerful politician and open cracks in the ruling party.

Despite its 2007 entry into the EU, Romania remains chronically graft-prone. Dragnea, already barred from becoming prime minister because of a previous vote-rigging conviction, is accused of keeping two women on the public payroll despite them actually working for his party; Dragnea denies wrongdoing.

MARKETS AT 0655 GMT

It's the last trading day before an event-packed week and markets are understandably nervous about holding on to too much risk before the weekend. The most immediate focus before next week (which will bring a probable Fed rate rise, the likelihood of hawkish ECB signals and the Trump-Kim summit) is the G7 meeting later today in Quebec. Expect Trump to be at his pugnacious best against erstwhile allies, having already tweeted out comments about EU and Mexican tariff barriers.

Mexican and Canadian currencies are looking vulnerable with the former down almost 3 percent already this week.  Wall Street closed lower last night, with tech shares snapping six sessions of gains while Asian shares – arguably the most vulnerable to trade wars -- are down around 1.3 percent. But world shares, also lower today, look set to snap a three week streak of losses.

Chinese data showing solid export growth and faster import growth is something positive though Trump could pick up on the fact that imports from the United States did not rise. And there’s no shortage of other issues elsewhere -  in Brazil where the peso fell 3 percent to two-year lows, stocks fell 6.5 percent and bond yields jumped 15 bps on fears that elections this year will see the fiscal policies being loosened.

All these issues have helped bring down U.S. Treasury yields after they again attempted a breach of  3 percent earlier in the week. They are back around 2.93 percent after a “flash crash” that saw wild trading in Treasury futures and saw cash yields fall as low as 2.88 percent in a session that some are attributing to a fat finger.

German bond yields too have fallen as much as 5 bps in early trade while the pressure is back on Italy where yields have jumped 10-20 bps – the country is seen as the most vulnerable in the euro zone to higher ECB rates.

— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own —

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