Finance ministers of the G20 countries, comprising of both developed economies and emerging markets met over the weekend in Shanghai to discuss the financial markets and the global economies. The meeting ended without a bang as members of the G20 released the official communiqué which highlighted the heightened risks to global economy on weakening, exchange rate volatility and steep declines in commodity prices. Interestingly, the G20 also carried references to the risk of Britain’s departure from the EU which could further weaken the economy.
There were no references to monetary policy but the community took a stand against the competitive devaluation of currency rates. The key points of the recently conclude G20 summit was:
- Will use all policy tools including monetary, fiscal and structural to strengthen growth
- Market volatility does not reflect the global economic fundamentals
- Concerns grow on further downward revision on global economic growth
- Heightened downside risks and vulnerability has increased for the global economy
Some analysts expected the G20 to do more in terms of strong coordinated action from the member countries to stem the recent downside risks in the equity markets. The meeting, however, remained inconclusive with no firm steps being taken.
In the meeting, China stated that it had no intentions to devalue the Yuan citing that there was no economic reason to pursue devaluation. The views from China were reiterated by IMF managing director Christine Lagarde who said that the message was “loud and clear” and that Beijing had no intent, determination or decision to devalue the Yuan. However, by Monday open, the Yuan’s exchange rate was set to 6.549 against the Dollar, marking the lowest level in three weeks.
The Yen opened on a stronger note on Monday with USDJPY falling sharply to session lows of 112.771 erasing most of the gains from Friday’s Dollar gains on better than expected GDP revision. The Yen remains a firm favorite for net long positions. Data released on Friday by the CFTC for the week ending February 23rd showed that the net long positions on the Yen touched a 4-year high at 52.7k contracts while the Euro net short positions were reduced to 46.9k contracts. The BoJ is expected to meet later this month and some analysts expect the BoJ to take further action by expanding its QQE program. The Bank of Japan lowered the deposit rates in the January meeting, which came as a surprise where the Central bank cut rates by -10bps marking an entry into negative interest rates alongside the ECB and the Swiss National Bank in a bid to push consumers to spend rather than save. However, the Yen quickly erased all the losses within a week and continues to trade stronger on a risk aversion sentiment that has been in play since early January this year.
CFTC positioning in Crude oil contracts was interesting as speculators cut the short positions to 327.4k contracts while increasing the long positions to 533.3k gross, in a move expected to show that speculators are positioning for further gains in Crude oil prices.