Major Market Movers: G20 Calls For Reform

Daily Forex Fundamentals | Written by Crown Forex | Nov 17 08 08:04 GMT |

One nation after the other collapse as they have all surrendered to the ghost of recession with Japan being the latest victim, entering its first recession in seven years trailing the Euro Area. Broader measures and responses are being taken and proposed by the G-20 leaders but we have yet to see any signs of recovery in the global economy. After holding a meeting in Washington, the leaders from the biggest developed and emerging nations said in a statement that there is still potential for further rate cuts and more stimulus packages in what they called a 'broader policy response'. Leaders are now hoping for nothing more than growth rather than a boom similar to what has been evident during the past ten years. As a result, a deadline was set, and March was the last chance for any member to submit recommendations on how o provide support to derivative markets and strengthen accounting standards. Already, write-downs and losses have mounted to total a shocking $964.6 billion which resulted in the spike of money market rates as lenders and banks were hoarding cash. This is just a hair away from the $1 trillion originally predicted by the International Monetary Fund in addition to forecasts released showing that major economies will contract for the first time since World War II!! The G-20 leaders represent 90 percent of the world economy and as the credit crisis that has begun 15 months ago intensifies, they are being pressured to take action noting that these actions are not necessarily to be coordinated as policy makers need to assess their domestic economy to know how to attack the crisis. The members have now asked for 'supervisory colleges' around the world to supervise and share information and risk of international banks while using clearinghouses as means to absorb the losses of financial derivatives of a dealer fails. This clearinghouse will be effective by year end in the US for the $33 trillion credit default swap market. Fingers are being pointed at investors as the main reason behind the crisis as the leaders were quoted saying that investors who 'sought higher yields without an adequate appreciation of the risks,' alongside regulators who failed to 'adequately appreciate and address the risks building up in financial markets' could have done something to limit the impact if the situation was properly monitored. Now a proposed measure was out in the open as the members are now opting higher capital standards and stronger risk management at financial institutions, hedge funds, credit-rating firms and banks. They have now warned banks and investors that the global economy could climb out of a recession only if they demand more profit by holding on to more cash. The whole point for this improved regulation is to allow banks who deal with collateralized debt obligations and securitized loans to replenish capital to limit the impact of losses at a time of an economic downturn. Lenders should now stock up on cash during periods of high profits so that at any time they experience rather large losses, they will be able to cushion the blow with the capital saved. Yet the question is how effective will this be? Already four major economies have fallen into a recession and emerging and developing nations are being hit as well. Data suggests that the UK and the US are teetering off the edge from a technical recession. Japan released its gross domestic product reading for the third quarter showing that on annualized terms, the economy contracted 0.4 percent taking the economy into its first recession since 2001 as exports have been slowing in the nation alongside diminished investment and spending by economies. On the quarter, the economy shrank 0.1 percent. Profits and earnings outlooks have been slashed and capital spending was down 1.7 percent. Imports out-weighed exports as they resulted in the deduction of 0.2 percentage points with export climbing 0.7 percent and imports rising 1.9 percent. However, that is not the problem Japan is facing! It seems now that Japan has fewer contributions to make after slashing their benchmark to 0.30 percent last month and adding a 5 trillion yen stimulus plan because they pretty much ran out of options at the moment. Many expect a zero-rates policy to be seen soon where if true, Japan might not actually be the first one there as they may suffer less since they are not holding much debt tied up to the sub-prime mortgage crisis. One more nation added to the woes surrounding the Euro Zone, UK and the US where expectations now show that these economies will face a deepened recession extending into 2009 prompting speculations that the Central Banks will cut rates further next month. The move is being criticized as being a little bit too late to help growth recover. The delayed reactions from policy makers in the Euro Zone and UK have pushed analysts to believe that growth won't pick up before the last quarter of 2009 which is two quarters after the US. From the calendars today, the EU is on queue as they release their trade balance for the month of September showing that the deficit had most probably narrowed in September to 6.0 billion from 9.3 billion alongside the seasonally adjusted reading that is seen to have narrowed to 5.7 billion euros from 6.1 billion Concerning the US, the negative vibe concerning the outlook of the economy in general whether the house prices, spending, stocks, construction or even the labor market will continue to add more downside pressures and risk on the economy. Although some see that a recession will be of less damage without the bailouts, others debating the arguments say that the US Treasury's plan of injecting capital and the support from the Federal Reserve will be the most effective. Not much will be seen from the US today yet analysts expect that industrial production will rebound to 0.2 percent from a previous 2.8 percent decline after Hurricanes Gustav and Ike that have disrupted refineries in the Gulf Coast have now operated adding more to output. However, capacity utilization is near steady where expectations are for 76.5 percent from 76.4 percent in September. In a different report, the Federal Deposit Insurance Corp. said that it may change the $1.4 trillion debt-insurance program as they now will probably charge different fees depending on the maturity of the debt rather than a single flat fee. This came after several complaints from banks including Bank of America Corp. and JPMorgan Chase & Co. to the FDIC that it could make overnight federal funds market much too expensive compared to direct loans from the Federal Reserve. The two day meeting over the weekend has come to an end with the proposals and deadlines on queue. Already a zero rate policy is expected to be evident sometime soon as economies fall into a recession with rate cuts being the move during the next central banks meetings. Is it really too late for the G-20 to act now or will the call for extra capital be the savior? Still we see nothing more than a global recession preying more victims as it strengthens!! Crown Forex disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.