(Not Very) Freaky Friday

There are a couple of noteworthy developments today, but the major currencies are confined to fairly narrow ranges in mostly unremarkable price action. 

German Prseident Wulff resigned amid a scandal.  He is the second president to resign in two years.  It is said to be a blow to Merkel, who has been seeing her support grow even after her party lost almost every state contest last year.  The immediate effect is that the Chancellor has to cancel/postpone trip to see Monti.  Nevertheless, the fact that the trip was planned--a bilateral discussion--lends credence to the view of presented here of the high-level emergence of Italy's Monti as a check/balance on Germany as Sarkozy's political future is not certain. 

The UK offered the data surprise of the week with a 0.9% rise in January retail sales.  The consensus had forecast a 0.4% contraction.  This follows a 0.6% increase in December and speaks to the resilience of the UK consumer in the face of the poor macro environment of austerity and falling real incomes.  The drop in the deflator to a 2-year low points to discounts and easing price pressures.  

The strength may be a function of early Olympic sales.  Sales at "other stores" rose 5.9% in January.  This was fueled by sportswear and sporting equipment.   Sterling  has built on on yesterday's recovery seen in North America.   It needs to hold above $1.58 to keep the momentum intact for another run at $1.60. 

The yen is the weakest G10 currency this week, following the BOJ's unexpected JPY10 trillion extension of its Japanese government bond purchase program.  It is off about 1.8% this week.  The yen is also the weakest currency of the year thus far off 2.7%.  This suggests it may not be simply QE weighing on the yen.  One of the factors may be a shifting pattern among stock and bond flows. 

The weekly Ministry of Finance data shows Japanese investors are buying an average of JPY592 bln a week of foreign stocks and bonds this year, a marked increase from the JPY264 bln weekly average during the same year ago period.  At the same time, foreign investors have slowed their purchases of Japanese bonds and stocks to a weekly average of JPY142 bln compared with JPY223 bln average in the year ago period.  The exchanges reports that foreign investors have bought $7.6 bln of Japanese shares this year, which represents a 40% decline year-over-year. 

Flows into many of the other Asian equity markets has been notable after foreign investors took profits at the end of 2011.  Inflows into South Korean equities, already $8.2 bln this year, is 6.2x more than during the year ago period.  India has seen foreign investors purchase $4.4 bln of equities, 3.6x more than a year ago.  Taiwan reports only a 1.5x increase, but that is still almost $3.3 bln.   The MSCI Asia-Pacific Index has risen for 9 consecutive weeks now and is up about 11% this year, a third better than the S&P 500 and DJ Stoxx 500.