Sat, Apr 04, 2009 - Page 1 News List

G20 plan sparks cautious optimism

‘TURNING POINT’ Investors saw unity in the global approach at G20, but remained cautious ahead of US jobs data, as signs showed the crisis had bottomed out


World leaders drew praise yesterday not so much for the boldness of their US$1.1 trillion package to help revive the global economy as for at least not making the crisis worse by failing to agree.

US President Barack Obama hailed the G20 summit in London on Thursday as a “turning point,” the meeting coinciding with shreds of data in the US, Europe and China that suggested the worst crisis since the 1930s may have hit bottom.

Markets generally reacted favorably to the summit’s outcomes, although a test of that optimism would come later yesterday when US unemployment data for last month was to be released hard on the heels of other jobs figures pointing to a worsening employment market globally.

The yen fell against higher-yield currencies like the New Zealand dollar and hit a six-month low against the Australian dollar, analysts seeing support there and in emerging markets because of G20 moves to beef up the role of the IMF.

The euro and dollar were steadier against the yen, the dollar up slightly at ¥99.65 after earlier nudging above the psychologically important ¥100 level.

Asian stocks rose for a fourth straight day as perceptions of a coordinated global policy response grew after the G20 summit.

Asia’s rise came after Wall Street and European shares firmed after the G20 meeting broke up. The Dow Jones industrial average rose 2.8 percent.

The lack of any real negative fallout from the G20 meeting followed a smattering of positive news this week.

US factory orders rose in February for the first time in seven months, bolstering hopes that a recession in the world’s largest economy may have reached a bottom.

A rebound in China’s official purchasing managers’ index (PMI) last month showed that the Chinese economy also may have bottomed out.

The G20 leaders said the measures agreed to would raise world output by 4 percent by the end of next year, although they were hazy on the amount of stimulus spending to date, with estimates ranging between US$2 trillion and US$5 trillion.

They agreed to triple the IMF’s resources to US$750 billion and to a US$250 billion package over two years to support global trade flows, which are forecast to fall 9 percent this year.

The leaders of the world’s richest and biggest economies, which account for more than 80 percent of world trade, also agreed to tighten rules on tax havens, hedge funds and credit rating agencies.

Markets took the big headline US$1.1 trillion figure in their stride, but were perhaps cheered more by the fact there was no dramatic outcome after harsh words on the eve of the summit by French President Nicolas Sarkozy.

A split had threatened to emerge between Washington, which wants more money pumped into economies to stimulate a return to growth, and France and Germany who favor tighter regulations of the financial industry.

“We expected a lot of discord between the US and the UK, and France and Germany, with China poking its nose in as well, but they seem to come out of the event as one connected group, seemingly on the same page,” said Dwyfor Evans, currency strategist with State Street Global Markets in Hong Kong.

“It implies that there is policy coordination and not policy discord,” he said.

Some reaction to the G20 outcome was more skeptical.

“For now at least the trillions of unmovable, over-valued and mismarked loans that continue to sit on the balance sheets of the world’s banks are forgotten. It’s amazing what a winning smile and some collective handshakes can do,” said Sean Keane, managing director of Triple T Consulting in New Zealand and a former Credit Suisse strategist.

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