The G20 summit, a meeting of the leaders of the 20 economically strongest countries in the world, began yesterday. Topics discussed included the climate, monetary policy and the war in Ukraine. Unfortunately, on the same day, Russia launched a massive missile attack on Ukrainian cities. For the first time, there was also a missile explosion in Poland, which is a NATO member. What impact could this have on financial markets?
Climate change and monetary policy
As Reuters reports: “G20 leaders agreed to pursue efforts to limit the global temperature increase to 1.5C - confirming the stand by the temperature goal from the 2015 Paris Agreement on climate change. On monetary policy, the leaders said their central banks would continue to calibrate the pace of monetary policy tightening, while being mindful of the need to limit "cross-country spillovers (a term used to describe negative spillovers to neighbouring countries)."
It seems that a change in monetary policy and a reduction in interest rate levels could be a signal to buy indices. An analysis by one of the world's largest investment banks may also confirm this. Morgan Stanley reports: 'Our '22/'23/'24 base case estimates are now 3%/13%/14% below consensus, respectively,” a team of Morgan Stanley analysts led by Mike Wilson wrote in a note to investors earlier this fall. “In our base case, 2023 now marks a modest earnings contraction (-3% year-over-year growth), though we do not embed an economic recession in this scenario." The analyst team expects the price of the S&P 500 index (US500) to fall to 3,400 points (about 15%) in the base case scenario but could fall as low as 3,000 points (about 25%) if a recession occurs.
Source: Conotoxia MT5, US500, Weekly
Russia's war against Ukraine
Russia's war against Ukraine seems to be a significant topic at the meeting. This is all the more so as we learned yesterday about the numerous bombings of Ukrainian cities. According to CNN: “World leaders gathering at the G20 summit in Bali are attempting to diffuse a potential escalation in the months-long Ukraine war after a “Russian-made” missile struck NATO-member Poland killing two people.”
Among others, US President Joe Biden chose to comment on the situation at the summit, saying: "it was “unlikely” the missile was fired from within Russia"
At present, however, we do not have precise information on who fired the missile into NATO territory and whether it was intentionally fired. Most members of the meeting condemned Russia and its invasion of Ukraine. However, in the event of an escalation of the conflict, which today seems unlikely, a weakening of the European currency could be possible. In such a scenario, we could see a flight of capital from Europe to the US, which could mean falls in the EUR/USD.
Source: MT5, EURUSD, Weekly
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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