Busch: Major Themes This Week

The weekend newsflow and mediaps (media appearances) had Obama aggressively promoting his health care plan, US Senator Dodd describing his vision for financial regulatory reform, and a number of companies going to the market to raise funds (RBS, Wynn, etc). We have 8 US IPOs this week with 10 more in Hong Kong. Equity markets will be keen to see how they do. Last week, we have a massive corporate bond issuance that just missed the record of $52 billion. Tuesday will see the opening of the UN and a mediap by Obama. FYI, there will be a major push on energy policy coming up due to the December UN Copenhagen meeting to forge a new agreement on climate change.

Starting on Tuesday, we have the US Federal Reserve meeting and discussing monetary policy. The question for the markets will center around whether they discuss a QE exit. The latest program is to end in October. Also this week, we'll have discussions on whether the US will end their home buying subsidy. As home buying and home prices have come back, this program is going to come under pressure to end similar to cash for clunkers. Existing home sales are expected to be up 2.1% in August.

The G20 will be the focus throughout the week as the WSJ has already put out a major story on what can come out of the meeting. After threatening to leave the meeting if there is no plank on limiting bank executive pay, French President Nicolas Sarkozy will urge leaders to introduce a special tax to reduce risky behavior by banks, according to the BBC. (No word on if he'll hold his breath as a protest.) Last Friday, EU's Alumina said he liked the idea of a Tobin tax on financial transactions.

Bottom line: financial institutions are going to be taxed somehow to pay for the global bailout programs.

As with all "G" meetings, there will be massive FinMin and central bank commentary hitting the newsflow. Last week, we had Japan's Fuji back away from strong yen comments and China continuing to issue warnings about the state of the US finances. Framework for Sustainable and Balanced Growth is the name of the possible G20 proposal and will incorporate BRIC countries with G7 to find ways to reduce global imbalances. Somewhere there has to be a place for a stronger Chinese currency in these discussions.

This is a crowded week and should be quite volatile as we run from side to side on these themes. I think we'll finally see the equity pullback many have warned about due to uncertainty on US policy and uncertainty over current global growth sustainability.

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Andrew Busch
Andrew Busch


Andrew B. Busch is Global FX Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece andreach him here and you can follow him on Twitter athttp://twitter.com/abusch .