Anxious markets hoping for clear steer from G20 as dollar fears bite

Wed Jul 17, 2013 9:19am EDT
 
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By Sujata Rao

LONDON (Reuters) - A well-orchestrated statement from G20 finance chiefs this week could go some way towards defusing the volatility of global markets surrounding the end of U.S. money printing, but probably not the markets' direction.

Strategists and investors have grown inured against over-inflated expectations of G20 meetings ever since it conducted a dramatic global economic rescue in early 2009.

But they say some show of solidarity among G20 finance chiefs in Moscow this week about the scale of recent market turbulence emanating from the U.S. Federal Reserve suggestions on a bond-buying exit would be eyed favorably by jumpy markets.

This may particularly be the case after Fed chief Ben Bernanke told the U.S. Congress on Wednesday pretty firmly that they should expect a pulling back from stimulus to begin later this year but again hung it all on the progress of the U.S. economy and hinted that there were global risks.

The G20 meeting in Moscow on Friday and Saturday will thus be especially crucial for developing countries who have been at the sharp end of the volatility in global markets ever since May 22, the day the Fed first signaled it could start unwinding its $85 billion-a-month stimulus.

As the dollar has surged, rising 4.5 percent off its 2013 troughs on the Fed's trade-weighted index, tens of billions of dollars have fled emerging stock and bond markets. Bond yields have spiked and currencies from the rupee to the lira have slumped to multi-year or even record lows.

But it is not just emerging markets that are affected - rising U.S. yields boost borrowing costs for everyone. The dollar moves have led to wild swings on world currency markets. The implied volatility on dollar-euro and dollar-yen exchange rates is up a third to a half from early-2013 levels.

"What markets and investors would appreciate is to have an understanding that there is more G20 cooperation and coherence in the crisis exit strategy," said Simon Quijano-Evans, head of emerging markets research at Commerzbank.   Continued...

 
A general view is seen of the Manezh Exhibition Center, venue for this week's meeting of G20 Finance Ministers, in Moscow July 16, 2013. G20/PREVIEW REUTERS/Sergei Karpukhin