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Should We Expect Any Fireworks from the G7 Meeting?

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President Obama must be disappointed this morning by the market's reaction to his bold and aggressive jobs plan. At $447B, the plan was much larger than most people had expected and may people including ourselves had anticipated a positive reaction to any package larger than $400B. Up until the President's speech last night, the expectation was for a $300B stimulus plan but knowing that meeting expectations alone is not enough, Obama went above and beyond, proposing a plan that leaves no questions about his determination to jumpstart the economy. Unfortunately Congress has been the roadblock for many of Obama's ambitious proposals and the risk aversion that we have seen in the currency and equity markets this morning shows that investors are skeptical about the chance of the plan clearing Congress quickly and smoothly. In other words, fiscal stimulus failed to help lift risk appetite and now it will be up to monetary stimulus to do the trick.

Today, G7 Finance Ministers and Central Bankers are convening in France to talk about the state of the global economy and what can be done to promote growth and a stronger recovery. In the past, G7 meetings have triggered big reactions in the currency market which is why investors are watching this 2 day meeting closely. Prior to the meeting, the Treasury said that coordinated monetary response will be a key topic of discussion today and tomorrow and the big question is whether the G7 could make a major announcement. Everyone at the table this weekend knows how serious the problems are at hand and with the U.S. championing a coordinated response, there is a good chance that it could happen. More finger pointing should also be expected with U.S. officials looking for more action from Europeans to head off a sovereign debt crisis in Italy and Spain while the Europeans will be looking to the U.S. for aggressive steps to stimulate growth and stop the dollar from falling. On the top of the agenda are the ongoing European sovereign debt crisis and the stagnant U.S. economy.

At bare minimum, we expect the G7 to say that they are collectively worried about where the global economy is headed and are working on a coordinated response. Unfortunately with no official statement set to be released, what we can expect is limited. We do not rule out a more decisive announcement but the G7 no longer yields the same power that it once had with the G20 now being seen as the world's main global policymaking body. Instead, what the G7 will most likely be doing is prepare their recommendations for the G20 meeting in Washington later this month and when the G20 meets, the market's expectations will be much higher. In summary, don't expect any fireworks this weekend.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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