Home A bold G20 stance on economic growth could boost risk

A bold G20 stance on economic growth could boost risk

Financial stability, economic growth and jobs creation are likely to be top of the agenda at the G20 summit in Moscow and any commitment to closer global coordination over economic and monetary policies could prove bullish for commodity and risk currencies.

This week’s G20 gathering of finance ministers and central bankers (though US Fed chairman Ben Bernanke is not attending) is taking place amid an increasingly complex economic tapestry. The US Federal Reserve clearly wants to rein in its $85 billion a month bond purchasing programme, while Japan is committed to a course of shock monetary and fiscal stimulus therapy.

By Justin Pugsley, Markets Analyst MahiFX –  Follow MahiFX on twitter at:  https://twitter.com/MahiFX

In the meantime, China wants to purge speculative excesses and curb its shadow banking system, which could result in a recession in the world’s second largest economy. As for the Eurozone, much of it remains locked in a depression.

Testimony  on Wednesday  from Bernanke probably did much to set the tone of the summit. This time he provided much greater clarity to the markets over the trajectory of its quantitative easing programme. He effectively said that it would be dictated by the needs of the economy and that there was “no pre-set course” In other words, the jobs and inflation data would do the talking.

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However, Bernanke did express concern over financial stability, namely that cheap money can fuel dangerous speculative excesses. This might be the real reason for the Fed’s desire to phase out quantitative easing and is hoping the economy is strong enough to absorb the rise in ‘real’ interest rates that are resulting from this stance.

The Eurozone is likely to come under pressure to reverse its austerity programmes a move which Germany has strongly resisted until now. However, Germany’s own economy is beginning to flag reflecting in part China’s slowdown and possibly greater competition from cheaper Japanese exports following JPY’s devaluation. Given this backdrop, Germany might become more amenable to fiscal stimulus programmes and to more aggressive monetary stimulus from the European Central Bank.

The market will also carefully monitor what the Chinese delegation says and will look for soothing words to suggest their economy will carry on growing despite the speculative purges.

A strong global commitment to economic growth and jobs creation from the G20 with a Fed that is even prepared to up its bond purchases if necessary should set the scene for a rally in currencies such as the AUD, NZD, CAD and GBP versus USD. It would also be supportive of gold in the short-term, but probably wouldn’t trigger a rally as it appears locked in a bear market for the time being.

Justin Pugsley

Justin Pugsley

MahiFX is headed by David Cooney, former global co-head of currency options and e-FX trading at Barclays Capital and responsible for the award winning e-commerce platform BARX and Susan Cooney, former head of e-FX Institutional Sales in Europe for Barclays Capital. Operating as a market maker, MahiFX provides traders direct access to institutional level execution speeds and spreads through its proprietary-built fully automated pricing and risk management technology, lowering the cost of retail forex trading. MahiFX global operations are headquartered in Christchurch, New Zealand with offices in London, UK with development and support teams in both locations for 24 hour service. The company is regulated by The Australian Securities and Investments Commission (ASIC), Australia’s corporate, markets and financial services regulator. Article by Justin Pugsley, Markets Analyst MahiFX  Follow MahiFX on twitter and on facebook  Disclaimer: This material is considered a public relations communication for general information purposes and does not contain, and should not be construed as containing, investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. MahiFX makes no representation and assumes no liability as to the accuracy or completeness of the information provided. The use of MahiFX’s services must be based on your own research and advice, and no reliance should be placed on any information provided or comment made by any director, officer or employee of MahiFX. Any opinions expressed may be personal to the author, and may not reflect the opinions of MahiFX, and are subject to change without notice