Intraday Market Thoughts

Global Recession Fears Escalate, G20 Leaders Pledge Action

by Kyle Morrison
Sep 23, 2011 8:49

Global recession fears grow as G20 leaders urge action on growth, Swiss National Bank quarterly bulletin, Italian retail sales set to rise.

In response to repeated warnings by IMF chief Christine Lagarde that the global economy is in a dangerous phase, some G20 countries drafted a letter signed by Australia, Korea, Britain, Indonesia and Korea and sent it to President Sarkozy in his role as chairman of the G20, urging decisive action to support confidence, growth and credibility. The letter added that Europe must look at all possible options to ensure long term stability, urging rapid implementation of the measures agreed on July 21st .

Last night's commitment by G20 leaders to a strong and coordinated international response to address the renewed challenges facing the global economy was a start, but markets are tired of the incessant jawboning without the ensuing follow-up actions.

Comments by ECB member Luc Coene, suggested that measures could be enacted as soon as next month if economic data continues to disappoint, suggesting a rate cut may be on the cards. Investors will be analysing Trichet's speech later tonight for any indications about that course of action.

In any case the US dollar has benefited the most as, hitting 8 month highs against a basket of currencies in an almost action replay of 2008, commodities, commodity currencies and equities sold off hard on growth slowdown fears.

Even gold has slumped as investors rotated capital back into cash to cover losses on trading books, or for margin calls.

Today's meetings of the G20 and the IMF is hoped will provide the necessary settings for some form of consensus with respect to the current crisis and produce steps to address current market concerns. All sort of speculation will grow for a weekend statement, but the bar of expectations has now risen.

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The Swiss National Bank quarterly bulletin is likely to focus on the recent strength of the Swiss franc and its impact on the Swiss economy. The bank is also likely to reiterate its determination to defend the new 1.20 peg against the euro. It has certainly been helped in this regard by the recent actions of the Fed which have seen a flight back to the US dollar, taking USDCHF back above 0.9000.

In Italy retail sales for July are expected to rise by 0.3%, negating the 0.2% fall seen in June. Even allowing for a decent figure here yesterdays announcement by the Italian government in slashing its growth forecasts for 2011 and 2012 has raised concerns that the recent budget cuts will only exacerbate the problems. With the ECB struggling and failing to keep a lid on Italian bond yields this will present a problem if the situation with respect to Greece continues to deteriorate with no agreement on the next tranche of bailout money and the troika set to return to Athens next week.


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