Group of Twenty to Tackle Ailing Global Economy

G20 Finance Ministers and Central Bank Governors to Meet in Shanghai this Weekend

The global economy is in a fragile state following a volatile start of the year that has reduced equity valuations and continues to pressure energy prices downward. Developed economies are forecasted to have moderate to flat growth and emerging markets are expected to lose further momentum. The International Monetary Fund (IMF) has urged nations to cooperate both within their borders and abroad to restart the economic recovery.

The group of twenty was founded in 1999 with these type of situations in mind. Their goal is to encourage high level discussions to promote financial stability. Major central banks showed a united front after the 2008 credit crisis, but uneven growth has put the U.S. and the U.K. on an tightening path, while the central banks of Japan, Europe and China need to inject more stimulus to achieve growth. The impact of diverging monetary policies are adding to the lack of market stability and the eyes of the market will be following the outcome of the G20 meeting.

The finance ministers and central bank governors of: Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom and the United States will meet for two full days in Shanghai starting on Friday, February 26 and will wrap up on Saturday, February 27.

G20 Looking for Cooperation not a Plaza Accord

The group of 20 meeting in Shanghai will focus on the Chinese slowdown, the energy price tumble and U.S. monetary policy according to Japanese Finance Minister Taro Aso. The market has entertained the rumour that a Plaza Accord type cooperation agreement has been planed, but those rumours were stamped out by China’s Finance Minister Lou Jiwei and U.S. Secretary of Treasury Jacob Lew. The IMF and the Organization for Economic Co-operation and Development (OECD) have called on the 20 member economies to sit down and come to an agreement on how to reverse the global slowdown. The diverging paths taken after the Fed broke ranks with central banks that build a low rate environment has unshackled volatility but at the cost of market confidence. There is no doubt that the Finance ministers and central bankers will discuss current macro events in a hope to find a way to boost global growth, but always with a regional goal in mind.

Japan and the US at Opposite Side Ahead of G20

The Japanese contingent have made comments where they seem to be looking for cooperation while at the same time explaining their latest decisions. Japanese Finance Minister Taro Aso the he is looking at the G20 for a response to the global financial turmoil. Japanese central bank governor Haruhiko Kuroda stated that the Bank of Japan is not intentionally weakening the JPY, but rather it is still aimed at reaching the elusive 2 percent inflation goal of Prime Minister Shinzo Abe.

The other side of the coin is U.S. Secretary of the Treasury Jack Lew. He has issued a warning to markets not to expect a “crisis response” from the G20 meeting. Lew is trying to deflate expectations as it is unlikely there will be a detailed commitment from members. The U.S. is waiting to see more serious commitment from other members and Lew said America can’t provide all the demand in the world. His comments have made the possibility of a Shanghai Accord, similar to the 1985 Plaza Accord that ended in U.S. dollar devaluation, a remote one and he is pointing the finger to Japan, Europe and China to do more to grow demand and boost growth.

FX events to watch this week:

Friday, February 26
8:30am USD Prelim GDP q/q
ALL DAY G20 Meeting
Saturday, February 27
ALL DAY G20 Meeting

*All times EST