The weekend meeting of 20 major global economies representing 85% of world GDP called for adding half a percentage point of growth each year to 2018 through renewed and aggressive stimulus. So far this is talk, but there is a chance for action. The G20 will convene again in November to show what they’ve done. Policy shifts and the move to stimulus will be focused on the developed countries – emerging markets will focus on debt and currency issues. Stimulus programs will differ from one country to another. Europe is likely to see renewed calls for more easing from the ECB and more open labor markets.
US picture is different: The Fed is firmly on course to taper QE3 and gradually move to tighter monetary policy, especially after the FOMC mentioned raising interest rates. As a result the focus will shift to fiscal policy. This fits with the Administration’s goals to talk about taxes and income distribution and to increase spending in anticipation of the fall mid-term Congressional elections. With the debt ceiling set aside until March 2015, there is a chance for a fiscal policy discussion that isn’t driven by fears of the deficit.
Stimulus — both domestic and international – should be a plus for the stock market, but probably not a big enough plus to give us a repeat of 2013’s market results. For fixed income, stimulus and tighter Fed policy mean higher interest rates.