Exchange traded funds (ETFs) turned flat on Friday as investors reacted to fresh monetary tightening in China ahead of an eagerly-awaited Group of 20 finance meeting in Paris.
- After high-profile pledges to shake up the world monetary system and address the roots of the financial crisis, France has set seemingly modest goals for the two-day meeting of Group of 20 finance ministers and central bankers that begins Friday, economists said. The technical focus of the meeting, the first since France last month took over the year-long rotating presidencies of both the Group of Eight industrialized nations and the G20 in January, belies rising tensions over the issue of global imbalances and currency issues, economists said. The PowerShares DB U.S. Dollar Index Bullish ETF (NYSEArca: UUP) is flat in early trading.
- European stock markets edged lower Friday, with mining stocks under pressure after further tightening measures from China and bank stocks hit by profit-taking after recent gains. Joshua Raymond, market strategist at City Index, said the sector’s drop accelerated after China raised its reserve-requirement ratio, the second increase this year. “Whenever we’ve seen a move by China in their new tightening regime, there’s generally been a knee-jerk reaction in markets,” Raymond said. The Vanguard European ETF (NYSEArca: VGK) is flat in early trading.
- China ordered its banks Friday to hold back more money as reserves in a new move to curb lending and cool a spike in inflation. Beijing is using a series of repeated, gradual hikes in interest rates and reserve levels to stanch a flood of lending that helped China rebound quickly from the global crisis but now is fueling pressure for prices to rise. Inflation is politically dangerous for China’s communist leaders because it erodes economic gains on which they base their claim to power. Poor families are hit hardest in a society where some spend up to half their incomes on food and millions have seen little benefit from three decades of economic reform. The iShares FTSE/Xinhua China 25 (NYSEArca: FXI) is up modestly at the open.
- It’s a good day for metals. Gold rose and silver moved to a 30-year high, while palladium jumped to the highest price in almost 10 years on demand for precious metals to hedge against declines in other assets because of unrest in the Middle East. Gold bar and coin demand in the Middle East jumped 39% in the fourth quarter from a year earlier, according to World Gold Council figures released yesterday. “If you see violence, you would buy gold expecting that the domestics would buy gold,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. The SPDR Gold Shares ETF (NYSEArca: GLD) is trading flat on Friday.
Gregory A. Clay contributed to this article.
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