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UK stock market commentary (February 18, 2013): Currency wars are a figment of your imagination

Well if there was anything to take away from the G-20 summit over the week end it was that there are “no worries” in terms of any currency wars. The Japanese Yen continues its slide lower against all the other majors and USD/JPY is back near its highs above 94.00 helping Asian stocks, in particular the Japanese Nikkei, as all their major exporting companies breathe a huge sigh of relief. The roughly 20% fall in the Yen is what these exporters have been crying out for some time now and the aggressive monetary stance from the new Japanese Prime Minister is having its desired effect so far. However, to get the sort of fuelling of inflation that they want to see the Yen has got a lot further to go. This is just another chapter in the so called book of “currency wars” and despite the protestations from some corners of the globe, as mentioned there was little in the way of abject criticism from the G-20 and so we’re likely to see the Bank of Japan continue to print Yen after Yen.

Things are likely to be quiet on the markets front as the US is on holiday for Presidents Day. Last Friday the week ended on a little sour note after disappointing results for WalMart, the bellwether retail company in the US, which drove equities lower with some investors now possibly adopting a wait and see stance rather than go in too early. Nonetheless, consumer confidence data rose higher than estimates, which could signal the overall sentiment remains on the optimistic side. In all the result for the Dow Jones was rather mixed but it ended as a small victory for the bulls with the index closing up 8 at 13,981.

So, understandably, the European markets are flat on the open to start the week with the FTSE at 6325. The quiet session in the US as a result of the bank holiday is likely to be replicated on this side of the Atlantic today as there is very little in the way of any economic data due out. Clients remain on the whole bearish about the prospects for the indices, but in particular of the US indices as they continue to hover around their five year highs.

Awaiting the conclusion of G-20 talks in Moscow, currency investors appeared reluctant to commit too much and stayed on the sidelines as the euro closed flat at 1.3357. If there was any pledge by finance ministers and central bankers, it was to adopt a harder stance against government intervention to influence exchange rates, which ‘untreated’ could potentially fuel the so-called currency war. This morning the single currency is a little lower at 1.3335.

Gold role as a store of value was eroded again last Friday following (by and large) another set of positive economic data in the US. The precious metal nosedived below the psychologically important $1600.00 mark for the first time since August last year before rebounding slightly to end $24.4 down at $1608.5. Its short and medium term outlook both have shifted to bearish with the moving averages all points downwards.

The US industrial production posted a 0.1% decline versus expectations for 0.2% rise which immediately triggered worries about energy demand going forward. At the same time, a separate report showed a drop in European exports questioning oil demand even more. As a result the WTI crude prices plunged $1.39 to $96.46 a barrel, effectively giving up the weekly gains.