Hangzhou G-20 Summit: Any news to cheer Wall Street traders?
WASHINGTON, February 28, 2016 – Great expectations for some dramatic move to be announced at this weekend’s annual G-20 summit jacked U.S. stock market averages up considerably last week, despite the market’s Friday fizzle. But as of Sunday evening, EST, this year’s Hangzhou summit—held in China for the first time—seems likely to turn out like most of the rest: entirely devoid of earth-shattering news.
This may or may not influence Monday trading action on Wall Street, although one never knows what will get high-frequency trading (HFT) firms’ supercomputer algorithms jazzed one way or the other.
Host country China, for its part, has apparently convinced major trading partners that it won’t be springing any more yuan-devaluation surprises on them in 2016. According to the Wall Street Journal’s latest online report*
“Chinese Premier Li Keqiang and central bank chief Zhou Xiaochuan worked hard to dispel worries among visiting G-20 finance ministers and central bankers that their economic strategy hinges on weakening the yuan’s exchange rate.
“‘The message was “heard loud and clear’ that Beijing has ‘no intent, no determination, no decision whatsoever to devalue the yuan,’ said Christine Lagarde, the managing director of the International Monetary Fund, after the weekend meetings in Shanghai.”
But traders, investors, and even the machines and algos on occasion aren’t much persuaded by promises and pronouncements by any currently existing government these days. Essentially all of them, save perhaps for stalwart Singapore, are low on 2016’s credibility totem pole.
This year’s summit is in its late innings now, and for that reason we’re not likely to hear much more in the way of detail, save, perhaps for a few grand, reassuring statements that won’t really reassure anyone. That’s because world governments no longer have a clue as to what to do to dig the world economy out of its present and future hole, aside, perhaps, from stealing the live savings from all the little guys in the world. Economic can kicking in the 21st century has become a way of life for most governments.
The only other “news” coming out of the summit is that many of the participants are scared to death about the possibility of a “Brexit” sometime this spring. No, that’s not a typo for the rumored “Grexit,” or Greek exit from the Eurozone that hogged 2015 financial headlines through most of that year’s first half and a bit beyond.
“Brexit” refers to the much-more significant economic downside potential facing the euro and the Eurozone if British voters decide this spring to tell Brussels it can take its dysfunctional system and shove it. The UK itself has its own basket of economic issues to deal with. But it still retains its own well-respected world-class currency, even though it’s a current EU member.
A complete exit from the arrangement would likely shake confidence in the already battered EU governmental and financial arrangements, meaning the potential for a world market crash could be substantial.
Added to these Brexit concerns is continuing bafflement over the battered price of oil. Economically, it’s a two-edged sword. Energy—specifically though not limited to oil—is key to just about everything in the world economy.
High oil prices put upward pressure on the price of everything. Current low oil prices, however, have a ripple effect, potentially making the price of raw materials and good significantly cheaper, leading to deflationary pressures—something that still deeply worries most governments around the globe, although they lie through their teeth when you ask them about it.
No one knows where the price of oil will go, though many pundits claim to. Yet it’s this commodity that’s holding pretty much all stock and ETF positions hostage whether anyone likes it or not.
Stock market futures are virtually flatline and slightly negative as we write this, although these numbers tend to become a better predictor of Monday trading action after 10 p.m. EST. Adding slightly to the confusion is the fact that Monday—February 29 in this leap year—marks the end of the trading month as we move to March 1—generally regarded as a “favorable season” for traders. But near-term oil futures contracts expire this week, too, so your guess on this week’s early action is as good as the Maven’s. Which in all candor at this point isn’t very good at all.
*Most of the content at WSJ.com is behind a paywall. The Maven is a long-term WSJ subscriber.