The Overnight Report: War Resumes

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February 19, 2013 9:35 AM EST

By Greg Peel

They met in Moscow on the weekend to declare there "is no Currency War". With the meeting out of the way, the War resumed last night.

Japan escaped any sanction in Moscow for its aggressive currency devaluation policies, hence Shinzo Abe stepped up the hostilities last night in suggesting Japan may purchase foreign bonds and thus place further pressure on the yen. The War in the Pacific saw the yen plunge another 0.5% against the US dollar, picking up from the 20% fall since Abe appeared destined to win the Japanese election last year. Abe will shortly announce his choice for the new governor of the Bank of Japan.

The War in Europe was played down by ECB president Mario Draghi last night, as well it might be given Europe has recently become a passive observer. It is not the ECB's policy to set a target for the euro, Draghi pointed out, although he did express his concern that any eurozone recovery is "at risk" from a euro at 15-month highs against the US dollar, which is preventing any healthy inflation or any economic growth.

Draghi could enter the War In Europe in earnest were Spain to ask for a bail-out, but despite high anticipation of such last year, Madrid has been eerily quiet ever since. Meanwhile, European banks have begun to pay back their LTRO emergency loans and have thus only served to exacerbate euro strength. Italy goes to the polls on the weekend and, as was the case with Greece last year, the threat of no clear winner is palpable. We may recall that global stock markets were complacently positive leading into the Greek election, and then down they fell.

The US holiday last night meant that not only were stock markets closed but other markets traded on low volume, adding to volatility. The US dollar index rose 0.2% to 80.64 on the back of yen weakness and before China has even had a chance to return from its own holiday, base metal markets tumbled 1-2% in London. With the G20 meeting failing to denounce the War, further US dollar strength is likely which will mathematically reduce all dollar-denominated commodity prices.

Brent crude fell US61c to US$117.05/bbl for the new April front month contract, while West Texas (March) dropped US48c to US$95.38/bbl.

Gold took its big tumble on Friday night as traders bottled ahead of the meeting in Moscow, exiting positions in case the G20 members were indeed able to put a stop to indiscriminate money "printing". Gold was unable to bounce post-meeting, nevertheless, in the face of a stronger greenback. It's steady at US$1609.80/oz. The Aussie is steady at US$1.0297.

The SPI Overnight was down 4 points.

Are we seeing a "political rally" in Australia? Wall Street appears to have stalled (notwithstanding last night's holiday) and is finding it difficult to either fall or rise from around the Dow 14k mark. The US quarterly earnings season is as good as over, but in Australia the half-year season rolls on, and to date the results have produced a good deal of positive surprise. Is this alone enough to carry the ASX 200 well past 5000 without any fear of vertigo? Or were yesterday's election polls the true driving force? Aside from promises to scrap the mining/carbon taxes, conservative governments have always been see as more stock market friendly. And the way things are going, federal Labor is set to mimic the last election performance of NSW Labor.

Interestingly, history suggests that that there is no correlation to speak of between stock market performance and incumbent political parties in Australia, or in the US for that matter.

Today's earnings releases include Asciano ((AIO)), Arium ((ARI)), Coca-Cola Amatil ((CCL)) and Southern Cross Media ((SXL)).


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