The Eurozone crisis has been one of the prime drivers of the US stock market in the recent past. The interconnectivity of the world’s financial systems has become exceedingly apparent. No one understands this correlation better than active traders. It seems that every night there is another European economic event that sends the pre-market and index futures wheeling one way or another. The ability to grasp the macro picture has become a key edge for winning the trading game. Understanding the players and how they interact on the world’s stage is the first step to gaining an edge in today’s market. This article will take a closer look at the most recent happenings from a traders perspective
Recently, the influential Group of 20 or G20 met in Cannes. The G20 is an organization of the 20 top sovereign economic powers in the world. It is during these meetings that plans are hashed out for the world’s future economic course. This most recent meeting produced a 2 page action plan for the global economy. Although nothing new was discussed, it solidified existing goals. Most interestingly, very little was officially said about the Greek situation. The truth is Greece is in major economic strife but it still remains a tiny part of the Eurozone. If the nation actually goes under, the reality is, it may not have as much of an effect on the Eurozone as feared. Perhaps the lack of official chatter about Greece at the G20 reflects this fact.
Italy was the main area of concern at the meeting. The country has witnessed its borrowing costs skyrocket due to worries about its ability to pay off its crushing debt. The G20′s plan addressed this situation by stating, “We welcome the euro area’s determination to bring its full resources and entire institutional capacity to bear in restoring confidence and financial stability, and in ensuring the proper functioning of money and financial markets.” Yes, of course, Italy is in trouble. However, the positive steps being taken should mitigate any major international financial fallout.
The group vowed to make certain that the International Monetary Fund or IMF always has enough resources to bailout troubled economies. This will be done via a variety of methods. These tactics include bilateral contributions, special drawing rights and a trust for voluntary contributions. Closer to home the United States agreed to continue government investment, tax reforms and job creation programs. This will be done concurrently with deficit cutting and debt reduction via its medium term fiscal consolidation program. President Obama seemed optimistic at the meeting stating, “I think that there are going to be some ups and downs along the way. But I am confident that the key players in Europe — the European political leadership — understand how much of a stake they have in making sure this crisis is resolved.”
The key takeaway of the meeting for traders is that the Eurozone is taking positive action to address the economic turmoil. Although there will be many ups and downs as the situations work themselves out, the world appears to be on the right track for a solution. Traders need to embrace the volatility while it lasts!
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