Notes From Underground: Why Are The G-7 Finance Ministers Meeting In England This Weekend?

There was a Reuters story yesterday by William Schomberg, “G7 Finance Chiefs to Discuss Bank Reform Push.” Very few people picked up on this but it seems strange that all the sudden a meeting is called  to discuss what elements of  bank reform. Are they going to try to persuade Germany to get behind the EU push for a banking union and if so why the hurry before the September German elections? The idea of a banking union with resolution authority is sure to be a lightening rod for all the German angst about the bailouts of the peripheral nations. The Reuters piece notes that some G-7 officials are upset that the U.K. called the meeting so soon after the recent IMF talks in Washington. One official said, “I am really annoyed I’ve got to give up my weekend for this.”

This leads me to believe that there must be a simmering problem coming to the boil. Something upset the market today and caused a large rally in the DOLLAR. It could not have been the rumor of the Jon Hilsenrath piece about the FED moving to tapering of QE for that is an old story. (I am really getting tired of all the nonsense tweets, especially the Hilsenrath leaks. This is definitely something to pay attention to tomorrow to this if the G-7 gains traction.)

***In another piece, Der Spiegel Online ran a story, “German Central Bank Head Blasts France.” I will continually stress that the main political battle may be the Bundesbank versus the EU. The German central bank is the bastion of “hard money” and is fighting hard about the German polity surrendering monetary and financial rectitude to the French and other profligate countries. The European Commission is prepared to grant France two years to get its budget deficit in-line with EU rules. President Jens Weidmann admonished the EU Commission and German politicians: “To win back trust, we can’t just establish rules and then promise to fulfil them at some point in the future. They have to be filled with life,” Weidmann said.

What seemed to have set Weidmann a flutter was France’s Finance Minister Moscovici’s remarks after the Brussels meeting: “We don’t want excessive consolidation for our country, we don’t want austerity beyond what is necessary.” The battle lines are being drawn and it appears that the BUNDESBANK is hellbent on reasserting its authority. This will not be a side-show but the main conflict.

***Shots fired, currency down. For all those who have denied the existence of a currency war, it is time for capitulation. The Aussies cut rates because the strong Aussie dollar is creating problems for Aussie business. The South Koreans cut interest rates because the weak Japanese yen is impacting the Korean export sector. The Swedes are bemoaning the strength of the kroner and threatening some type of intervention. And the RBNZ  actually intervenes to stem the rise of the KIWI and sells its own currency.

Coupled with the South Korean rate cut was a Financial Times story, “Japan Overtakes S.Korea In Car Wars.” Toyota reported its fiscal year profits tripled and predicted a forty percent increase in profits for the new year. Honda reported large profit increases and even SONY was back in the black. More importantly, Japanese automakers plan to use the increased profits to ramp up R&D thus not sitting on their successes but ramping up their product lines. Currency wars: nothing to see here. Oh, did I mention an unscheduled G-7 meeting taking place in the U.K. this weekend?

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11 Responses to “Notes From Underground: Why Are The G-7 Finance Ministers Meeting In England This Weekend?”

  1. Dustin L. Says:

    Great piece Yra, and thanks for alerting me to the G-7 “emergency” meeting this weekend, something to watch indeed as everybody runs to the USD. I couldn’t help but notice most of the major 2-10 curves continued to steepen, especially in Japan. This has been a serious steepening in curves since the start of may. I thought I might leave it to the man who drew my attention to the importance of following these yield curves to offer a view as to why and what it means?

  2. yra harris Says:

    Dustin–has been some move in the aussie but the Japanese 2/10 has not moved and has really remained too flat which is troubling because of the move in the yen–but your point is well taken and of course is on the radar of major importance

  3. Dustin L. Says:

    Fair enough Yra, thanks. I guess it will be a while before I can understand what a “serious” move really is on the curve. 🙂

  4. yra harris Says:

    Dustin–there has been a serious move in yen curve in the last week but it has really only taken us back to the pre–april 3rd level–but this is a must topic to discuss and you have beun the conversation

  5. Michael Greenberg Says:

    From today’s WSJ…

    “LONDON—The Co-operative Banking Group said Friday its chief executive would step down hours after the bank was downgraded to junk status by Moody’s Investor Services, stoking fears that the financial services arm of Britain’s biggest mutually owned company could require a government bailout.”

    Think I’ll go short GBP over the weekend.

  6. GreenAB Says:

    i think it wasn´t about the Hilsenrath nonsense but for Plossers remarks on tapering QE

    not sure why the market starts to care now, while ignoring the lone hawk for a while. maybe it has do to with the fact that his call was more specific this time calling for the next meeting to reduce purchases and putting out a jobless rate forecast of 7% by december.

    of course QE exit won´t happen next month, but it puts some pressure on the committee to start withdrawing liquidity earlier than the markets are expecting.

    i agree, something is up as the selloff in bonds continued after the Hilsenrath rumor was put to rest.

  7. Says:

    addition: it was good to see Roger Altman this morning on CNBC, confirming what i was saying all along – European austerity was not a political but a MARKET DRIVEN event and the outcome would have been the same if Germany wasn´t pushing for budget cuts.
    “if you lose access to markets, you have to restructure”


  8. Chicken Says:

    There are so many moving parts, just wondering how/if the US/European Trade Agreement introduced in Obama;s STOU address fits in here…..

  9. yra harris Says:

    XGREENx1—i did see altman and also read his FT piece on Thursday—my problem with Altman is that he makes no mention of the Euro being the cause of the mal credit event in Europe.The reducing of risk premia allowed the pheripherals to borrow too much at low risk levels

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