European shares and the single currency dipped as investors waited for the next salvos in the 'currency war', while yesterday’s weak eurozone growth numbers continued to sap the life out of the 2013 rally.
Markets are awaiting a statement from the G20 meeting in Russia castigating interference in country’s exchange rates as Europe battles an increasingly strong euro and Japan continues to benefit from a decline in the yen.
Russian finance minister Anton Siluanov has promised the two-day meeting in Moscow will yield a ‘specific’ response to accusations of currency manipulation.
His comments come after German Bundesbank head Jens Weidmann said the European Central Bank will not use the impact of the rising euro alone to take monetary policy decisions. The euro had gained after Weidmann’s comments, but later fell back, down 0.26% to $1.3324, still suffering from yesterday’s report showing that the euro bloc economy contracted by 0.6% in the final quarter of 2012.
'After nearly four years of quantitative easing and competitive devaluations amongst some of the world’s largest reserve currencies, cracks are now starting to appear in the unified stance presented by global policy makers.' wrote a team of ING strategists led by Mark Cliffe in a report published this morning. 'Washington is losing patience with Tokyo’s policy of devaluing the JPY, while the weak USD is also threatening unwelcome gains for the trade-weighted EUR'.
Traders said that currency markets would remain volatile while the G20 meeting continued. The British pound, which has declined in value so far this year, was higher this morning. Sterling traded up 0.2% against the dollar to $1.5522 and 0.4% against the euro to €1.1639. Investors and traders expect the UK's economic weakness to ensure the pound to continue weakening this year in what fund manager Stewart Cowley calls the 'quiet crash'.
The oil price, which has risen strongly so far this year among improved expectations for the world economy, also fell back. Brent crude futures traded down 0.3% to $117.7
On equity markets Europe and Asia again failed to match small gains in the US, where Warren Buffett’s deal for H.J. Heinz Co had lifted sentiment.
Despite gains from mining shares including Anglo American (AAL.L, up 2.6% to 2,066p) an, Kazakhmys (KAZ., up 1% to 757p) and Vedanta (VED.L, up 0.7% to 1,291p) Britain’s FTSE 100 dropped back by 0.1% to 6,320, while the eurofirst 300 was flat at 1,163.
With Chinese New Year still limiting trading in Asia, markets were mixed. Japan’s Nikkei 225 fell 1.1% news that the leading candidate to head the Bank of Japan, Toshiro Muto, is expected to take dramatic steps to boost Japan’s economy.