G20 Meeting Failed To Calm Markets - 26.9.2011

Asian stocks dropped on Monday and the euro extended losses as meetings of the world’s finance ministers and central bankers over the weekend failed to ease concerns over the European sovereign debt crisis. Although the G20 nations meeting in Washington offered new steps to contain the euro region’s crisis, such as leveraging the European Financial Stability Facility through borrowing, nothing concrete has been decided. US Treasury Secretary Timothy Geithner reiterated his concerns that a lack of decisive steps from the European governments carries the “threat of cascading default, bank runs and catastrophic risk.” Bank of Canada Governor Mark Carney said 1 trillion euros may be needed to stop the crisis and the UK Chancellor of the Exchequer George Osborne set a November 3-4 Group of 20 summit as the deadline for a solution. Finally Greek Finance Minister Evangelos Venizelos said his country “wants to make it and will make it” and will never leave the euro area. US Dollar The dollar accelerated gains this morning against all its counterparts except the Japanese yen. However the data this week is expected to be somewhat weaker again. US consumer spending probably slowed in August, reflecting growing pessimism among households that may further restrain the biggest part of the economy, while consumer confidence held close to more than a two-year low. Purchases probably increased by 0.2% in August following a 0.8% gain in July. As consumer spending cools and exports to struggling economies overseas decrease, US factories are seeing fewer orders. Bookings for durable goods declined by 0.5% in August, according to preliminary estimations before the Commerce Department releases data on Wednesday. Today reports are forecasted to show a 1.3% August drop in new home sales and if so it would be a four month running decline. The dollar index, which tracks the unit against a basket of six US major trading partners’ currencies, rose today to its highest level since February 14 – 78.86. Euro The euro weakened against most of its major peers, falling to its January levels against the greenback amid concern European policy makers will struggle to contain the region’s debt crisis. The euro dived as well on expectations that reports today may show German business confidence fell to a 15-month low, adding to signs the region’s economy is deteriorating. The IFO institute will say today its business climate index for Germany, based on a survey of 7000 executives, dropped to 106.5 this month from 108.7 in August, according to forecasts, with expectations component of the index falling below 100 and indicating a negative outlook for the next 6 months. The single currency fell in Asian trading hours from 1.3550 to 1.3362 against the US dollar. Australian Dollar The aussie extended losses as well against the greenback on general negative tone. However the Treasurer Wayne Swan said that Australia is facing the current global economic turmoil from a position of strength, with low unemployment, a strong banking system and a big investment pipeline. “The international economy has entered a dangerous new phase,” while Australia’s “successful response to the global financial crisis and record of economic reform means our fundamentals today are rock solid.” “The crisis has now entered a new ‘political phase’ with markets calling for swift action by policy makers,” Swan said and predicted continuing “bouts of instability for some time.” The nation’s GDP expanded more than economists forecast last quarter, driven by rising consumer spending and a rebound in exports. The economy will grow by 1.8% in 2011, according to the IMF prediction. However, as the Australian economy depends heavily on external factors, the national currency fell against the US counterpart today to the lowest level since December 2010 – 0.9629 from 1.0324 a week ago.