The upcoming G20 summit will address a broad array of issues including currency exchange rates, financial support for Eurozone nations, and ensuring food supplies with the Action Plan on Food Price Volatility and Agriculture.
The G20 Summit was established in 1999 in response to the 1997 Asian Financial Crisis to bring together leaders from the major advanced and emerging economies of the world to help stabilize global financial markets.
The new crisis of today is in Europe, not Asia.
Worrying problems with European debt in Southern European countries such as Greece over the past couple of months have signaled renewed concerns about the stability of the European Union and the liquidity of European banks to deal with their debts.
Last Thursday global stock markets advanced decisively following a new EU agreement that was reached by EU leaders to handle Greece’s debt problems.
European Council President Herman Van Rompuy wrote in a recent letter to G20 leaders about the “continued need for joint action” to move the global economy on the right path. Joint action appears to be some form of international financial support for Europe’s rescue fund.
President Van Rompuy and European Commission Jose Barroso explained in the G20 letter about the need to build on the progress that was made last week in Brussels at the EU Summit, culminating in the EU rescuing Greece from the brink of default through a combination of measures consisting of a 50% write down of Greek bonds, a commitment of 1.4 trillion from the European rescue fund (EFSF), continued bond buying by the European Central Bank (ECB) of European debt, recapitalization of European banks, and reassurances from the IMF that more support will be garnered in the future.
During the upcoming G20 Summit meeting the issue of exchange rates will be broached in greater detail. Although the letter to G20 leaders did not specifically single out or name the nations that have been impacted by the manipulation of currency exchange rates, there were subtle references that highlight the recurring currency exchange dispute between the United States and China.
“Many distortions underlying the large pre-crisis imbalances are still to be addressed including undervalued exchange rates in key emerging surplus economies” they wrote. The United States has repeatedly accused China of keeping the Chinese Yuan artificially low to make Chinese exports cheaper on the international market.
The week ahead in the U.S. market
The Federal Open Market Meeting will occur on Tuesday and Wednesday. Analysts are not expecting any significant policy changes during the meetings, especially after last week’s better than expected GDP number of 2.5%. On Wednesday the Fed will be making a forecast for continued U.S growth.
Next week will also see a new jobs report (Fri) on October. The unemployment level is expected to be unchanged at 9.1%. Analysts are expecting 95,000 new jobs created with Non-Farm Payroll.
On Monday morning in Asia, the U.S. dollar dropped to a new low against the Japanese Yen, prompting Japan’s Finance Minister Azumi to intervene in forex markets by selling the yen which in turn caused Japan’s currency to drop against the dollar and euro. Finance Minister Azumi said that Japan would “take decisive steps to stem the currency’s rise.”