G20 meeting of FinMins & Central Banks. Impact on Equities and Dollar

The upper panel in the below chart shows major equity indices globally (Dow, Dax, Shanghai, Korea, Hang Seng, UK and India), all indexed to 9^th Nov 2008 when a G20 meeting was held to address the Lehman failure and subsequent financial crisis.

The lower panel shows the dollar index, taken as a general reference for the currency markets. The yellow vertical lines show the dates of G20 meetings of Finance Ministers and Central Bank governors. The next such G20 meet is on the 18^th of March 2017 (i.e., next weekend) in Germany.

Impact of G20 meet of Finance Ministers and Central Banks on Equity Markets and USD Index

In 2008, 2009 and 2010 equity markets rallied after these meets while dollar weakened. These meeting were primarily held to address the financial crisis and consequently equity markets took a breather post them. We cannot rule out coordinated action by government to prop up equity markets in order to restore confidence. Dollar was attracting safe haven flows during this period and consequently after every such meeting the dollar index weakened.

In 2011, 2012 and 2013 equity markets showed pick up in upward momentum post such meetings, while the dollar index was mixed to slightly weaker post these meetings.

In 2014, 2015 and 2016 specifically equity markets picked up momentum and rallied post these meetings and the dollar index weakened as well. The Feb 27^th 2016 meeting surprisingly put an end to Chinese concerns and equity markets turned around from that

date to record all time highs.

The next meeting and my expectations

The next meeting is on the 18^th March (Saturday) 2017 in Germany. Equity markets are already showing upward momentum so the pickup could be moderate but one should for sure expect new highs in the week ending 24^th March.

US has been worried about other countries using their currency to get a higher share of trade and I would expect this to be discussed in detail in such a meeting. Going into the meeting and post the event we should see other currencies appreciating against the USD specially JPY, CNH and other EM currencies. Historically USD index has weakened post these meetings because of flows away from safe haven of the dollar. But now there is a larger case for weaker dollar immediately before and after this meeting as trade protectionism comes to the table.

FOMC on the 15^th of March can push the dollar higher post which we should see the G20 meet becoming the theme. Therefore I would not sell the dollar as yet because the FED seems to be on a hawkish path and can surprise the market by talking about balance sheet reduction. But once the FOMC is behind us we should focus on the G20 which has been more impactful on the markets then most other events.