G20 Must Commit To Stimulate World Growth

G20 Must Commit To Stimulate World Growth


Financial market participants are looking for signs from the G20 officials to take action to drive growth and calm world currency moves.

As finance ministers and central bankers from Group of 20 (G20) nations gather in Shanghai, Citigroup Inc.’s (NYSE:C) Steven Englander said a failure to include more explicit support for fiscal stimulus in the closing statement from policy makers would be taken poorly by investors.

He says that a commitment to fiscal expansion and clarity on China’s currency policy will send equities higher next week, while stocks will fade if those issues are not addressed and stressed.

Slumping stocks and weakening currency are in the spotlight, while the impact of negative interest rates in Japan and Europe, a strengthening USD, and the scope for governments to boost spending are also expected on the agenda.

“Keeping to the previous language would be very disappointing and would be viewed as either complacent or reflecting policy paralysis,” Mr. Englander, Citigroup’s head of currency strategy for major developed economies, said in a 25 February report. He urged the G-20 to “man up and tell member countries that monetary policy should be accompanied by fiscal expansion.”

The International Monetary Fund said in a report this week that the G20 “must act now to implement forcefully” existing growth strategies while also planning for unified support for demand through government spending.

German Finance Minister Wolfgang Schaeuble Friday voiced his opposition to any fiscal stimulus plan from the G-20, warning that the use of debt to fund growth simply leads to “Zombifying” economies.

Herr Schaeuble’s stance puts him in conflict with other G20 finance chiefs, who began 2 days of talks Friday.

US Treasury Secretary Jacob J. Lew said in an interview that the US wants a more serious commitment from other G-20 nations to use monetary policy, fiscal measures and structural reforms to stoke demand.

Bank of England (BOE) Governor Mark Carney warned in a speech in Shanghai Friday that policy makers should avoid getting embroiled in a “Currency War” and that stimulus measures should be structured to boost domestic demand.

“For monetary easing to work at a global level it cannot rely on simply moving scarce demand from one country to another,” Mr. Carney said. “For the world as a whole, this export of excess saving and transfer of demand weakness elsewhere is ultimately a Zero sum game.”

China’s Vice Finance Minister Zhu Guangyao said fiscal stimulus should be deployed to boost global growth, while Yi Gang, the deputy PBOC governor, said the nation will maintain a relatively stable currency as it embraces market forces.

If the G-20 does what I think they are going to do, which is make some comments to stabilize the thought process of the Chinese currency, if they can accomplish that and the US government is convincing enough that countries are going to use fiscal stimulus, then there is a chance it will be seen as positive in equity markets next week, and then again, maybe not.

Financial analysts are skeptical about the G20’s ability to co-ordinate policies to control gyrations in foreign-exchange markets.

Currency traders are seeing the most volatile February in 6 years, with 3-month price swings for the Japanese Yen surging to 10.6%, and a measure of future fluctuations approaching the highest since Y 2013.

There is little prospect of a deal along the lines of the 1985 Plaza Accord, where the governments of the US, UK France, West Germany and Japan agreed to weaken the USD.

As Crude Oil’s drop to a more than 12-year low led a dive in commodities, more than $6-T has been wiped off the value of global equities this year.

Share gauges in Europe, Japan and China have lost more than 10% since 31 December and US indexes retreated as much as 8.4%.

Bond markets have rallied, the Global Developed Sovereign Bond Index advanced 5.1%

Friday, the US major stock market indexes finished at:

Volume: Trade was heavy with over 1-B/shares exchanged on the NYSE

  • Russell 2000 -8.4% YTD
  • NAS Comp -8.3% YTD
  • S&P 500 -4.7% YTD
  • DJIA -4.5% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Neutral (0.02) Neutral (0.14) Neutral (-0.02) Neutral (-0.06)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (-0.05) Neutral (0.18) Neutral (-0.10) Neutral (-0.22)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (-0.14) Neutral (0.12) Neutral (-0.15) Bearish (-0.39)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Neutral (0.13) Neutral (-0.18) Neutral (0.09) Bullish (0.47)

Have a terrific weekend.

Paul Ebeling


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