Fitting that the G7 Meets in Japan

The big economic issue on the agenda at the G7 is the continued sluggish growth of the global economy. While the group of seven major advanced countries does not include rising powers such as India and China, it still accounts for more than a third of the world’s GDP. In addition, its limited membership of “like-minded countries” means it may be one of few meetings that can actually make a difference.

Capital Market Stability is Relative

The US dollar is little changed against the major currencies as yesterday's moves are consolidated and traders wait for fresh developments.  Global equities were higher after Wall Street's advance yesterday.  Asia-Pacific bond yields were firm, following the US lead, but European 10-year benchmark yields are lower, led by the continued rally in Greek bonds after an agreement was struck that will free up a tranche of aid.

Finding (a new) LIBOR

Since the LIBOR scandal erupted, US officials have been working toward an alternative benchmark.  In 2014, the Fed set up a working committee that includes more than a dozen large banks and regulators.  Before the weekend, the committee (Alternative Reference Rates Committee) proposed two possible replacements for LIBOR. 

There reportedly was some consideration of using the Fed funds as an alternative.  However, Fed funds were rejected because it would have made it more difficult to change the monetary policy framework in the future. 

Obama in Japan; Economic Relations March On

‘As President of the United States of America, I express my profound apologies for the sufferings inflicted on the people of Hiroshima and Nagasaki by the atomic bombings’. These, of course, are the words that we are not going to hear Barack Obama speak in Hiroshima on 27 May, when he becomes the first sitting US president to visit the city since the atomic bombings in August 1945.

Does it Matter When the Fed Raises Rates?

The US dollar lost momentum yesterday but has regained it today.  The euro has been pushed through last week's lows near $1.1180.  The next immediate target is $1.1145, which corresponds to the lower Bollinger Band today, though the intraday technical readings suggest some modest upticks are likely first.  The $1.1200-$1.1220 area may cap upticks.

Smaller ASEAN Countries Stand Up to China

Chinese Foreign Minister Wang Yi’s whirlwind tour of Brunei, Cambodia and Laos during 22–24 April 2016 courted support for his country’s territorial claims in the South China Sea. However, the issue of China’s policy in the South China Sea has created a fault line across ASEAN, complicating the unity and effectiveness of the regional grouping.

Interest Rate Differentials Widen and the Dollar Benefits

The US dollar’s weakness in recent months, despite negative interest rates in Europe and Japan likely had many contributing factors.  These factors include shifting views of Fed policy, weaker US growth, the recovery in commodity prices, including oil, gold and iron ore, and market positioning.