6:07 am - Thursday March 23, 2017

G 20 Accord for Global Markets?

As one might have noticed, western world is impacted by four D’s – excess Debt, financial sector Deleveraging, aging Demographics and technology Disruption and they have induced huge volatility in the market place slowly and steadily. This is in addition to deterioration in the quality or capability of four C’s – China, Commodities, Credit and Consumer in global markets.

Well. There is a talk in the global market place of a new secret accord that has been consummated. There has been no official announcement of any new foreign-exchange pact at the February meeting of central bankers and policy makers from the 20 largest economies, (G-20 Meet in Shanghai, China)

Let us relive the select moments of 2015 and 2016 thus far.

The US dollar index jumped almost 10% last year. In December, it reached its highest level in more than a decade on expectations the Federal Reserve would start to increase interest rates.

This 2015 run-up sent ripple effects through financial markets, with emerging markets and U.S. exporters suffering in particular. Oil prices were also hit, although the substantial decline in crude futures was largely due to a persistent supply glut.

Rumors are flourishing that global policy makers made a secret deal at the G-20 meeting in Shanghai late last month. This “Shanghai Accord” to weaken the greenback was aimed at calming the financial markets, which had gotten off to an awful start to the new year, according to the chatter.

To any conspiracy theorists, it’s all become quite clear. There is a global coordinated central bank effort to weaken dollar in play, which in turn has led to a massive de-risking in equity and credit markets.
Since the G20 meeting in Shanghai there have been many red flags. Whether it’s the People’s Bank of China easing the Reserve Ratio Requirements (RRR) by 50 basis points, the Reserve Bank of New Zealand cutting its cash rate by 25 basis points very much out of consensus, or the ECB moving to a focus on credit markets and going significantly above and beyond expectations.

This week the Fed struck a surprisingly dovish tone and hinted it would significantly slow the pace of rate hikes year. The comments sparked a selloff in the dollar, with some market observers seeing it as another evidence of the secret “Shanghai Accord”.

Only time will tell. Of the striking of such an accord. If indeed such an accord were worked out and if it works miracle for the world economy, it would be good. Let us hope for the best.

Plus, there is something of a precedent: The Plaza Accord. In 1985, the finance ministers from the U.S., France, West Germany, Japan and the U.K. made a deal to jointly guide the dollar lower against the yen and the German mark. The action was meant to help jump-start the U.S. economy by reversing an extended run-up by the greenback

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