Only a Brief Respite after G20 Communique

September 23, 2011

Today is the first day of the semi-annual IMF/World Bank meetings in Washington.  G20 finance ministers and central bankers released a statement overnight that promised a coordinated response to five identified downside risks:

  1. Contagion from sovereign debt stresses.
  2. Financial systems fragility.
  3. Market turbulence.
  4. Weak economic growth.
  5. Unacceptably high unemployment.

European share prices initially rose after the statement was released, but that relief rally didn’t last long.  The German Dax, Paris Cac and British Ftse show net overnight losses of 0.7%, 0.9%, and 0.4%.  Earlier, Asian markets mostly fell after U.S. equities had tumbled on Thursday.  Stocks plunged 5.7% in South Korea, 5.1% in The Philippines, 3.3% in Thailand, 2.0% in Vietnam, 1.6% in Australia and Malaysia, 1.4% in Hong Kong, 1.2% in Singapore, 0.9% in New Zealand, and 0.8% in Singapore.  Japanese markets were closed in observance of the autumnal equinox.

The G20 communique urged emerging market governments to allow enhanced exchange rate flexibility that reflect economic fundamentals.  “We reiterate that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. …We are committed to supporting growth, implementing credible fiscal consolidation plans and ensuring strong, sustainable and balance growth.  This will require a collective and bold action plan, with everyone doing their part.”  All these vows have been promised before.  It would seem a bit late for more of the same.

In a day without meaningful data releases, the dollar is unchanged against the yen, euro, kiwi and yuan.  The dollar lost 0.5% against sterling, 0.3% relative to the Australian dollar and 0.2% versus the Swissie but rose another 0.3% against the beleaguered Canadian dollar (see my Thursday post on Canada).

The yields on 10-year German bund and British gilt yields rose two and one basis points overnight.

Moody’s cut its rating for eight Greek banks by two notches and left their outlook “negative.”

In other developments surrounding the IMF meetings, the World Trade Organization trimmed its forecast of global trade flows this year, and the BRIC nations urged their European counterparts to take swift steps against the euro debt crisis that now threatens the whole global economy.  ECB President Trichet and Dudley and Williams of the Fed speak publicly today.

Gold prices fell 0.7% to $1730.40 per ounce and are now about 10% below their recent peak.  Oil edged 0.1% higher to $80.62 per barrel.

French business confidence fell by a greater-than-expected six points to 99 in August.  Consumer sentiment in Euroland’s second largest economy did likewise, printing at 80 after 86 in July.

The German index of leading economic indicators (LEI) slipped another 0.3% in July.  Australia’s LEI dipped 0.1% in July.

Italian retail sales fell 0.1% after a drop of 0.3% in June.  Italy posted a EUR 2.4 billion trade deficit with non-EU countries in August, similar to the shortfall in August 2010.  Polish unemployment dipped a tenth to 11.6% last month, and retail sales in that economy rose 1.1% in the same month.

The British Bankers Association reported a 4.4% on-month increase in the number of mortgage loans in August.  Such had a value that was 1% higher than a year earlier.

Spanish PPI inflation slowed to 7.1% in August from 7.5% in July.  Singapore CPI inflation accelerated to 5.7% from 5.4% in July, but core inflation in this citistate was 2.2%.

Tensions continue to intensify between the Pakistani and U.S. governments

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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