Despite the circuitous nature of the current macro economic events it’s becoming extremely difficult to keep up with the shape shifting events. For example, it’s not uncommon for commentators get confused as to who does what in this Comedy Of Errors Shakespearean farce. Whilst Trichet is about to exit stage left and take the bow and applause on the final curtain of his tenure, up steps Barroso to continue with the narrative. Meanwhile the ‘troika plot’ thickens, the G20 roll into town and the IMF..well the IMF continues to be the IMF.
Ultimately, in the finale of Comedy Of Errors, the Duke (Solinus) pardons Egeon for entering the city, Antipholus of Syracuse begins to court Luciana for marriage and Emelia holds a feast to rejoice the family’s reunion. The G20 solution feast can’t come quickly enough. As to whether or not that celebratory feast will be held this weekend, the weekend of the 23rd, or November 3rd is anyone’s guess given there may be other meetings held in between.
You have to wonder if each time there’s a small ripple of disquiet in “the markets” Christine Lagarde doesn’t send out a group text and e-mail; “we need another meeting scheduled guys, just let Bloomberg and Reuters know, that’ll soothe the markets for another week. Sorry if that takes the scheduled meetings right up to Christmas and ruins your holiday plans at Klosters…’ang on, wait a minute, if we have a meeting at Klosters we can prove that even when we have our ski-ing break, on most exclusive slopes there are, we’re still hard at it..genius, I so deserved this job..”
The thought does occur what if this series of meetings is simply a continual series of meetings for years to come? That this damage limitation exercise, to keep the patient alive whilst in a deep coma, is the only solution? You have to wonder if some party will eventually break ranks and ‘fess up that the Eurozone needs circa €2-3 trillion to avoid the dominoes of the sovereign debt crisis from toppling, anything else is quite simply puff and air, there has to come a stage when “the markets” aren’t fooled by the hollow rhetoric.
As the G20, the E.U. Ministers, the IMF, (overlapping with the troika), meet to thrash out ‘the plan’ Spain gets a credit downgrade from Standard & Poor’s. This meeting in Paris is the prelude to another meeting of the G20 due to take place on October 23rd before another meeting in Cannes in early November. European shares and the euro were steady on Friday as hopes of progress towards a solution to the euro zone’s debt crisis tempered the potential for a knee-jerk reaction to the credit rating downgrade for Spain. There was a time when a downgrade such as this, for one of Europe’s major economies, would have sent markets spiralling, particularly given many economists and commentators have continually pointed to Spain and Italy being the real problems in the Eurozone vis a vis direct comparisons with Greece.
IMF Managing Director Christine Lagarde told member countries last month that the IMF’s current $390 billion funding level may not suffice to meet all loan requests should the global economy worsen. The IMF are likely to continually repeat that plea during the succession of meetings over the next three weeks. However, it may prove to be increasingly difficult, if not impossible, for Japan, China, Russia and other BRICS nations to agree to contribute. A move to bolster the IMF’s firepower would be similar to a G-20 decision in April 2009 to triple the fund’s resources as part of a plan to pull the world out of recession. But certain countries may take a more isolationist stance towards what could be perceived as a sickness in the western banking system that could be contained by the west’s investors taking the sixty percent maximum ‘haircuts’ suggested.
The main Asian markets fell in overnight, early morning trade, the Nikkei closed down 0.85%, the Hang Seng closed down 1.35% and the CSI closed down 0.33%. The main European market indices are up in morning trade; the STOXX is up 0.57%, the FTSE is up 0.73%, the CAC 0.64% and the DAX up 1.01%. The SPX index future is currently up 0.7%. The euro is heading for its largest weekly gain versus the dollar since January as the G20 finance ministers start their two-day meeting. The currency is headed for its first five-day advance in seven weeks against the yen.
The economic data releases that could affect the afternoon session sentiment include the following;
13:30 US – Import Price Index September
13:30 US – Advanced Retail Sales September
14:55 US – Michigan Consumer Sentiment October
15:00 US – Business Inventories August
A Bloomberg survey shows a median expected change of -0.4% (month on month) for import prices which remains unchanged from the previous figure. Year on year this was expected to be 12.4% compared with the previous released figure of 13.0%. Economists surveyed by Bloomberg yielded a median forecast of 60.3 for the Michigan sentiment, compared with the previous release of 59.4.