Friday Morning Cheat Sheet: 3 Stories Moving Markets
Investors seemed to be curbing their exposure to exporters and banks in Japan ahead of the G20 meeting this weekend. The Nikkei fell 1.18 percent for the day, ending the week with 7.49 percent year-to-date gains. The yen strengthen slightly to 92.75 to the dollar. The Hang Seng increased 0.13 percent, while the S&P/ASX 200 was off 0.06 percent.
The markets were mixed in Europe as New York headed towards its opening bell. London’s FTSE 100 was up 0.09 percent, while Germany’s DAX was off 0.16 percent and the STOXX 50 was off 0.30 percent.
U.S. futures at 7:55 a.m.: DJIA: -0.09%, S&P 500: -0.11%, NASDAQ: -0.06%.
1) Currency seems to have stolen the spotlight at the G20 meeting in Moscow. Investors around the world are concerned that Japan is being too aggressive in weakening its yen. Japan, of course, is trying to end over a decade of deflation and sluggish economic growth, and a weaker yen means stronger exports. But if the yen weakens substantially over a short period of time — like the 12 percent it has already tumbled over just three months — then companies that compete with Japanese exporters are left at a competitive disadvantage.
The feared result is what many are calling a currency war, where major economies intentionally devalue their currency and initiate more aggressive monetary policies. A devalued currency can be good for an individual nation, but a competitive spiral of devaluations is bad for everyone.
2) Japan is one focal point of the international conversation surrounding currency, and Europe is another. The Bank of England has signaled that a full recovery in the United Kingdom may require a weaker pound, but the sentiment was quickly paired with the insistence that the market will set the pound’s value, not the government.
Still, all through the euro zone, struggling economies large and small have said that a relatively strong euro is making recovery difficult. Economic data released by Eurostat on Thursday revealed a broad decline in the region’s economic output. While a weaker euro could assist in economic recovery, it’s a double-edged sword. As Bundesbank President Jens Weidmann said, any “exchange-rate policy to specifically weaken the euro would lead to higher inflation in the end.”
3) Meanwhile, in the United States, the markets are looking ahead to the report on January industrial production. The report, due to be released by the Federal Reserve at 9:15 a.m., is expected to show that production and capacity utilization were effectively unchanged, at 0.3 percent growth and 78.9 percent utilization, respectively. December results followed a spike of 1.4 percent production growth in November due to Hurricane Sandy recovery efforts. Motor vehicle production is expected to come in particularly strong for January.