China's Latest Attempt to Clear the Air

The picture of Presidents Xi and Obama, beaming as they shake hands after jointly announcing their ratification of the Paris Climate Agreement on the eve of the G20 summit, is even more striking when one considers just how far apart the two countries were on the issue of climate change as recently as 2012.

The Obama Administration deserves credit for its second-term diplomatic engagement with China on climate and energy issues, but by far the biggest contributors to China’s changed international stance on these issues are internal to China itself.

Is the IMF International Enough?

The global financial crisis raised critical questions about how international policy frameworks monitor, regulate and manage global liquidity. Liquidity is a public good and the international financial system is immediately affected by its excessive volatility. The G20 has been struggling for some time to come up with answers.

They have focused on an important array of banking and financial reforms but have stopped well short of addressing the fundamental problem of calibrating global liquidity to meet the needs of the global economy.

Is there Room to Raise Rates?

Our approach to Fed-watching is clear:  Among the cacophony of voices, the Troika of Fed leadership, Yellen, Fischer and Dudley provide the clearest signal. They are most often on message, and their comments have been the best indications of policy.  

Remember at the end of last summer; Dudley said a rate hike was less compelling.  This foretold the lack of hike last September.  Earlier this year, as several regional presidents were talking up a rate hike, Yellen pushed against it. 

When Governor Brainard Talks, People Listen

Stocks and bonds have begun the new week much like last week ended.  Sharp losses are being recorded.  The US dollar is mixed, with minor losses against the euro, yen, and sterling, but a firmer tone is evident against the dollar-bloc and emerging market currencies. 

Expectations are for a Capital Market Continuation

The week ahead will likely be shaped by a combination of what happened last week and what will happen the week after next.  The end of last week saw a sell-off in equities and bonds and a recovery in the US dollar. The week after next the FOMC and BOJ meet in apparently live meetings, meaning that policies may be adjusted.  

Europe (German Data) Sets a Heavy Tone

The US dollar is lower against all the major currencies this week as North American participants close it out.  On the day, the dollar is consolidating swings yesterday and is narrowly mixed.  Bond yields are higher and equities are mostly lower.

The euro has finished lower the last three Fridays.  The streak may end today.  The euro has found support nearly $1.1260, and the intraday technicals favor a move higher in the US morning. 

Emerging Economies Belated G20 Voice

In Hangzhou, China began the push for G20 to overcome protectionism and fuel global growth prospects. That is vital to reverse stagnation in advanced economies and slowdown in emerging nations.

On September 4-5, the leaders of the G20 economies met in Hangzhou. The summit had great symbolic importance that was easily understood in emerging economies but largely ignored in advanced economies.

ECB Rate Policy Unchanged, but Growth Forecast is Shaved

The shaving of 2017 and 2018 growth forecasts, recognition of continued downside risks did not prompt the ECB to adjust monetary policy.  Rates were left unchanged, as widely expected.  The ECB also refrained from extending the asset purchases.  This is somewhat disappointing.  It was the only action that investors were discussing as a possibility.  Bond yields appear to be backing up in response.