G20 Update – Not Positive for the U.S. dollar…..
Per JP Morgan Research:
* Bottom Line on the G20 – the final communiqué touched on three key points: 1) FX; 2) trade; 3) IMF reform. On the subject of global currencies, the final language was inline w/the draft leaks made to the press in the days leading up to the event. No single currency was singled out and a commitment was made to adopt “more market determined exchange rates” and to “refrain from competitive devaluations”. On trade, the US-proposed 4% limit for trade surpluses/deficits was rejected (as was expected) in favor of more general language (there was a commitment made to reducing “excessive imbalances”). One of the most significant developments at the weekend summit was the reform of the IMF, granting emerging market economies are larger voice at the institution. The key focus point for investors was on FX and there the outcome of the weekend was inline w/expectations (some may take the weekend as a neg. for the dollar given there was no explicit language aimed at strengthening the greenback; however, Geithner did reiterate a “strong dollar” policy on the sidelines of the event while the prospect of a smaller QE2 on Nov 3 and greater GOP control of the Congress, which could come w/it spending constraints, may keep a bid under the buck in the coming week).
* The language around currencies from the official G20 statement is pretty much right inline w/press reports leading up to the event and are relatively vague – “move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies. Advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates. These actions will help mitigate the risk of excessive volatility in capital flows facing some emerging countries. Together, we will reinvigorate our efforts to promote a stable and well-functioning international monetary system and call on the IMF to deepen its work in these areas. We welcome the IMF’s work to conduct spillover assessments of the wider impact of systemic economies’ policies”
* Geithner’s statement was a bit more specific on currencies – “we have agreed to cooperate more closely on exchange rate policy. Countries with significantly undervalued exchange rates committed to move towards more market-determined exchange-rate systems that reflect economic fundamentals, as China is now doing. The countries responsible for the dollar, euro and yen recognized the importance of preserving stability among the major currencies and avoiding excess volatility and disorderly exchange rate movements. We all committed to refrain from competitive devaluation, or undervaluation”
* Speaking to reporters after the G20, Geithner says the US has a special responsibility to support the dollar; Geithner said, “It is the policy of the US to support a strong dollar…and we recognize the special responsibilities we have to help contribute to global financial stability” as a country with a key reserve currency. (Bloomberg/DJ)
* There was no 4% deficit/surplus target although a paragraph did emphasize a commitment to stabilize unsustainable trade imbalances – “strengthen multilateral cooperation to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels. Persistently large imbalances, assessed against indicative guidelines to be agreed, would warrant an assessment of their nature and the root causes of impediments to adjustment”
* The G20 Fin ministers reached an agreement to enhance the voting powers at the IMF of emerging economy countries – The ministers agreed that two of the nine European seats on the 24-seat IMF board will be shifted to emerging economic powers. As well, 6% of the voting and financing quota of the IMF will be shifted from advanced countries to emerging ones. WSJ
* Germany accuses the US of indirectly manipulating the dollar via the Fed’s super-easy monetary policy. http://www.cnbc.com//id/39808247http://www.cnbc.com/id/39808247
* Geithner tells Bloomberg in an interview after the G20 meeting that China is engaged on the issue of currency and understands that it’s in Beijing’s interest to see the yuan higher as they don’t want to be dependent on US monetary policy. Reuters
* Geithner in China – following the completion of the G20 Finance Ministers talks, Geithner traveled to China for talks w/Vice Premier Wang Qishan; the two discussed US/China eco relations and made preparations for the upcoming G20 Leaders Summit – Bloomberg
* Official Communique: http://bit.ly/9D0nQW
* Geithner’s statement: http://bit.ly/bAPFDJ
Per JP Morgan Research:
* Bottom Line on the G20 – the final communiqué touched on three key points: 1) FX; 2) trade; 3) IMF reform. On the subject of global currencies, the final language was inline w/the draft leaks made to the press in the days leading up to the event. No single currency was singled out and a commitment was made to adopt “more market determined exchange rates” and to “refrain from competitive devaluations”. On trade, the US-proposed 4% limit for trade surpluses/deficits was rejected (as was expected) in favor of more general language (there was a commitment made to reducing “excessive imbalances”). One of the most significant developments at the weekend summit was the reform of the IMF, granting emerging market economies are larger voice at the institution. The key focus point for investors was on FX and there the outcome of the weekend was inline w/expectations (some may take the weekend as a neg. for the dollar given there was no explicit language aimed at strengthening the greenback; however, Geithner did reiterate a “strong dollar” policy on the sidelines of the event while the prospect of a smaller QE2 on Nov 3 and greater GOP control of the Congress, which could come w/it spending constraints, may keep a bid under the buck in the coming week).
* The language around currencies from the official G20 statement is pretty much right inline w/press reports leading up to the event and are relatively vague – “move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies. Advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates. These actions will help mitigate the risk of excessive volatility in capital flows facing some emerging countries. Together, we will reinvigorate our efforts to promote a stable and well-functioning international monetary system and call on the IMF to deepen its work in these areas. We welcome the IMF’s work to conduct spillover assessments of the wider impact of systemic economies’ policies”
* Geithner’s statement was a bit more specific on currencies – “we have agreed to cooperate more closely on exchange rate policy. Countries with significantly undervalued exchange rates committed to move towards more market-determined exchange-rate systems that reflect economic fundamentals, as China is now doing. The countries responsible for the dollar, euro and yen recognized the importance of preserving stability among the major currencies and avoiding excess volatility and disorderly exchange rate movements. We all committed to refrain from competitive devaluation, or undervaluation”
* Speaking to reporters after the G20, Geithner says the US has a special responsibility to support the dollar; Geithner said, “It is the policy of the US to support a strong dollar…and we recognize the special responsibilities we have to help contribute to global financial stability” as a country with a key reserve currency. (Bloomberg/DJ)
* There was no 4% deficit/surplus target although a paragraph did emphasize a commitment to stabilize unsustainable trade imbalances – “strengthen multilateral cooperation to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels. Persistently large imbalances, assessed against indicative guidelines to be agreed, would warrant an assessment of their nature and the root causes of impediments to adjustment”
* The G20 Fin ministers reached an agreement to enhance the voting powers at the IMF of emerging economy countries – The ministers agreed that two of the nine European seats on the 24-seat IMF board will be shifted to emerging economic powers. As well, 6% of the voting and financing quota of the IMF will be shifted from advanced countries to emerging ones. WSJ
* Germany accuses the US of indirectly manipulating the dollar via the Fed’s super-easy monetary policy. http://www.cnbc.com//id/39808247http://www.cnbc.com/id/39808247
* Geithner tells Bloomberg in an interview after the G20 meeting that China is engaged on the issue of currency and understands that it’s in Beijing’s interest to see the yuan higher as they don’t want to be dependent on US monetary policy. Reuters
* Geithner in China – following the completion of the G20 Finance Ministers talks, Geithner traveled to China for talks w/Vice Premier Wang Qishan; the two discussed US/China eco relations and made preparations for the upcoming G20 Leaders Summit – Bloomberg
* Official Communique: http://bit.ly/9D0nQW
* Geithner’s statement: http://bit.ly/bAPFDJ
