The Monday Report

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By Greg Peel

The G20 finance ministers declared on Saturday there would be no Currency War. Yet the G20 did not see fit to specifically criticise Japan’s new policies aimed at driving down the yen. The lead-in statement made by the G7 earlier in the week — that exchange rates would not be directly targeted by governments — was reinforced, with the wider group adding that monetary policy would only be targeted at promoting fiscal stability and growth.

As far as forex traders saw it, the meeting may as well never have happened. Japan appears to have a green light to continue yen devaluation, and traders will continue to play the short side accordingly. So much for “no Currency War”.

Wall Street meandered along sideways for most of Friday until a report was released suggesting leading retailer Wal-Mart’s February sales were a “total disaster”, according to an executive. Wal-Mart blamed last month’s fiscal cliff-related expiry of payroll tax cuts, which affect less weekly pay for all employees. Wal-Mart is not the only retailer to be suffering from the fallout.

Yet Friday’s fortnightly measure of consumer sentiment form Michigan Uni showed a rise to 76.3 from 73.8 in the latter half of January, to reach the highest level since November, before the Cliff began to scare everyone.

January industrial production in the US showed a 0.1% slip, but the results of November and December were simultaneously revised upward. On a year on year basis, January IP was up 2.1%, consistent with broader GDP growth. Activity in the New York Fed industrial area has also improved into the new year, with a bigger than expected jump to plus 10.0 from last month’s minus 7.8 on the Empire State manufacturing index.

The Wal-Mart news sparked a sudden sell-off around 2pm on Friday, which saw the Dow down 60 points having largely flat-lined to that point. Yet while this might have suggested to some a pullback was finally on the cards, stocks recovered to close out the session relatively unchanged. The Dow closed up 8 points, the S&P fell 0.1% to 1519 and the Nasdaq lost 0.3%.

With regard to the much anticipated pullback that never comes, it has oft been noted since late last year that investment funds have begun to flow back into equities after a long post-GFC hiatus. February has now begun to paint a different picture. Three weeks ago marked the tenth week of net fund inflows according to data from EPFR Global. Two weeks ago net flows were neutral, and last week saw net outflows of US$3.62bn. It is of no great surprise that investors have started to waver given just how much pullback talk there is about, yet stock markets are hanging in there regardless.

Gold was slammed on Friday night, falling US$25.00 to US$1609.10/oz despite only a 0.1% increase in the US dollar index to 80.47. Gold has been looking wobbly of late despite the Currency War, and I noted on Friday that a break of 1630 meant clear air to 1600 on a technical basis. Presumably gold traders became nervous ahead of the G20 meeting on the weekend, which might have brought a greater restriction on rampant individual currency devaluation. But it didn’t.

The Aussie has also taken a bit of a tumble, falling 0.5% to 1.0299 by Saturday morning local time. Base metals are still stuck in a holding pattern, with Friday’s moves unsubstantial, but by tomorrow China will be back in business after its long New Year break.

The oils continue to play games, with Friday seeing Brent down US14c to US$118.58/bbl, but West Texas down US$1.91 to US$95.86/bbl. The suggestion was that Nymex traders were feeling cautious after some weak global economic data over the week and did not want to carry positions into a long weekend.

The SPI Overnight was again fired up despite a lame Wall Street, rising 13 points or 0.2%.

China is closed for one more day today and tonight the US is closed for Presidents’ Day. Tomorrow night sees the US housing market sentiment index released and Wednesday brings housing starts, the monthly PPI, and the minutes of the last Fed meeting. Thursday it’s existing home sales, the CPI, and the Philadelphia Fed manufacturing index.

Thursday will also see a flash estimate of the US manufacturing PMI for February after similar releases from the eurozone and China (HSBC).

The eurozone will see the German ZEW investor sentiment survey tomorrow night and the IFO business sentiment survey on Friday and both of these have surprised to date in being rather positive. Will they still be so after last week’s miserable eurozone GDP result?

Italy goes to the polls on the weekend.

Australia will see vehicle sales data today and the minutes of the last RBA meeting tomorrow. Economists will be looking for further clues a March rate cut is a possibility. The RBA governor will also provide a regular testimony to parliament on Friday after Westpac releases its leading index on Wednesday.

All the attention will nevertheless be on earnings result season, which steps up in pace this week. There are too many releases from which to pick highlights and readers are directed to the FNArena calendar for a comprehensive list. Highlights for today include Amcor ((AMC)), Lend Lease ((LLC)) and Seek ((SEK)) amongst quite an extensive list.

Rudi will appear on Sky Business on Thursday at 12pm.

 

For further global economic release dates and local company events please refer to the FNArena Calendar.

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