In South Africa they are entering the final week of the group matches. Around the globe fans are rooting for their home teams and complaining about the officiating. Even if you are not watching closely you can appreciate the fact that the matches are being decided on the field (or the pitch) and not in some corner office, through a popularity vote or dictated by the media.
As the World Cup begins the round of 16 matches, governmental leaders from around the globe will be meeting to discuss the global economy. The G-20 meeting this time around takes place in Toronto before heading back to Seoul in November.
Per usual, many countries offer preliminary comments and China was the first to have their say. They repeated what they had said earlier last week which is they are not interested in hearing complaints from the US or any other country regarding their Yuan policy. The central bank has since stated that they will allow for more flexibility in the CNY but have not offered a timeframe for the change. It didn’t take long for Obama to form a rebuttal and state that he was looking forward to discussing how to fix the global imbalances (which means more flexibility in the CNY from an American political point of view).
Let’s journey back as to why the G-20 meetings were constructed in the first place. In 1997 fears grew that Thailand would not be able to repay its debts and months later the Asian crisis was in full swing. The crisis spread throughout the Pacific Rim region. China did not contribute to the crisis, in fact in retrospect by not revaluing the CNY China was one of the reasons why the markets would eventually settle. By 2000 it was evident that the G7/8 was too small to cope with the global economic issues and the G-20 has gained in stature ever since.
Now post the 2001/2 recession, the 2007/8 credit crisis and the 2010 European crisis our political leaders are still pressing China on their currency! Hmmm, China’s rebuttal should be very easy to form indeed. For one they could point to growth rates in the old G7 countries. All of which are being downgraded by the second as discussion on the potential for double-dip recessions increase. They could also point to inflation levels as from Japan to Germany inflation is not a threat and core levels of inflation are in negative territory in many cases right now. They could also point to confidence levels as consumers in China are very confident right now while surveys such as the US Consumer Confidence survey or the ZEW survey in Germany point to a lack of confidence at the consumer and business level. Of course China could also ask the G7 countries what would happen if they stopped investing in our bond markets, where would the next crisis be!
Currency traders also know not to listen to the old G7 leaders but pay more attention to the emerging leaders. Currensee.com shows that (and I hope that I do not jinx these traders) that currency traders are profitably short USD/HKD, short NZD/JPY and half the positions in USD/MXN have been short for quite a while.
In the World Cup emerging countries have been outplaying the developed nations. During the G-20 meetings expect the developed nations to have their say in the press but when it comes time to trade the markets listen to what the emerging countries are doing.
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