First we had this rather bland statement from the G7 — “domestic objectives” etc — and now this:
12-Feb-2013 13:56 G7 OFFICIAL SAYS G7 IS CONCERNED ABOUT UNILATERAL GUIDANCE ON THE YEN, JAPAN WILL BE IN SPOTLIGHT AT G20 MEETING IN MOSCOW
12-Feb-2013 13:56 – G7 OFFICIAL SAYS G7 STATEMENT WAS MISINTERPRETED, STATEMENT SIGNALED CONCERN ABOUT EXCESS MOVES IN JAPANESE YEN
Group of Seven financial leaders, worried about risks to global growth, are likely to agree this week to keep monetary policy accommodative, slow fiscal consolidation in countries where that is possible and implement structural reforms, Reuters reports, citing an unnamed source. Finance ministers and central bank governors of the United States, Canada, Japan, Germany, France, Italy and Britain (G7) meet on Friday in the French port of Marseilles to discuss what action to take to prop up the slowing global economy. “The main issue will be the slowdown in the global economy and what is the best way to tackle that,” a G7 official with knowledge of the preparations for the meeting said.
As rumours (scurrilous, nonsense – Ed.) swirl in the market of a French rating downgrade, Citigroup’s chief economist Willem Buiter is considering a much bigger issue – a world without any AAA G7 sovereigns.
The criteria applied by the rating agencies to the G7 sovereigns in the past have been, in our view, far too lenient. As argued in Buiter (2010) and Buiter et. al. (2011), the post World War II period has seen a combination of gradually eroding tax administration capacity, diminishing tax compliance in the private sector, and the evolution of political decision-making institutions, processes and practices that make it possible to mandate public spending without ensuring sustainable funding for these expenditures. This is bringing to end the period during which for a number of advanced industrial and post-industrial countries, the sovereign automatically represented the best credit risk in its jurisdiction and an AAA rating for these sovereigns was considered natural – almost a right. Only a few small countries with a surviving culture of tax compliance and political institutions that effectively impose the government’s intertemporal budget constraint may have AAA ratings in the not too distant future.
Traders were flooding into gold while trimming stock and industrial commodity positions as global markets gyrated following the downgrading of the US credit rating, the FT reports. However, pledges of intervention from the European Central Bank and G7 to calm the eurozone bond complex and forex sector helped take some of the sting out of the broader sell-off. European bourses noted sharp falls in Asia – off 2.4 per cent – with the FTSE Eurofirst 300 opening lower by 1.4 per cent as broad selling saw Monday’s dealing screen’s spit silent claret. It was noticeable, however, that major indices across the continent did not open with the depth of losses initially feared, with support coming from firmness in bank stocks as sentiment in eurozone “peripheral” debt markets improve. The FTSE Eurofirst at one point moved into positive territory but later relapsed. It was down 0.3 per cent at the time of writing. The S&P 500 futures contract at one point showed Wall Street opening with a loss of about 3 per cent, which would take the benchmark’s losses over the past 11 sessions to 13 per cent and leave it at a fresh 9 month trough. The S&P contract was off 1.5 per cent.
Well, then. Asian markets did open lower but hardly in armageddon territory; look like the bankers were prepared after all. Or the G7 and ECB assurances have really helped.
Anyway, here are key points from that G7 ministers’ statement issued shortly before the Asia open: Read more
Tin hat — check.
Sad trader face — check. Read more
How do we know that foreign funds are being repatriated into Japan? Because the yen strengthened against the dollar after the earthquake and until the G7 intervened. Why did the yen strengthen? Because funds were being repatriated, or will be.
Circular logic if ever there was any. In truth, the above is a simplistic representation of arguments that the repatriation of funds is putting upward pressure on the JPY, so admittedly we’ve just knocked down something of a strawman. Read more
What is wrong with this picture?:
Business as usual?! Read more
The Group of Seven industrialised nations have agreed to co-ordinated currency intervention for the first time in a decade to help Japan recover from its devastating earthquake, tsunami and nuclear crisis, the FT reports. Authorities in Japan, the eurozone, the UK, Canada and the US agreed on Friday to help weaken the yen in a rolling intervention that began at 9am in Tokyo, which immediately pushed the yen down from above Y79 against the US dollar to below Y81. FT Alphaville asks whether Friday’s coordinated G7 intervention will prove to be a one-day wonder?
Extraordinary times indeed call for extraordinary measures. When the yen surged more than 4 per cent in less than an hour to a fresh post-war low of Y76.25 on Thursday, it was clear that something had to give.
On Friday morning, the yen fell the most since 2008 against the dollar – 3.5% to Y81.79 per dollar at 12:30am in Tokyo – the Nikkei 225 Stock Average rose nearly 3 per cent, oil rallied and US index futures climbed on Friday after G7 central banks intervened to weaken Japan’s currency for the first time in more than a decade. Read more
While you were sleeping…
Statement from the G7: (emphasis ours) Read more
“The G7 countries are completely asleep at the wheel. I looked at the information they put out from their meeting I was absolutely shocked … they seem to show no awareness at all that much of Europe is facing a serious crisis and it’s not limited to Spain, Greece and Portugal, it’s also going to include Ireland. I think Italy is also very much in the line of fire. There’s a very serious crisis inside the Euro-zone.”
Former IMF chief economist Simon Johnson commenting to the BBC about the Euro-zone crisis on Sunday. Read more
UBS draws attention on Monday to the fact that widening G7 sovereign CDS spreads are as yet not being mirrored by rising bond yields.
That’s not to say that CDS are being mis-priced. There just happen to be other extenuating circumstances keeping yields low, according to UBS. However, in most cases the correlation you would expect to get between sovereign bonds has been decreasing over the course of the year. Read more
G7 finance ministers sought to reassure markets that debt contagion in southern Europe was under control, expressing confidence that Greece could bring down its debt levels without outside intervention, after equity markets tumbled on Friday amid fears the country would need a massive bailout from the IMF or eurozone. Concluding a weekend meeting in Canada, they also moved closer to agreeing on new bank levies and made the case for continued economic stimulus; see separate report.
You spend years developing and structuring a single European currency. You take care mandating the terms and conditions for entry. You reject unworthy applicants. You launch with great success. You become the key alternative choice for settlement of international claims and central bank reserves.