dailyreckoning.com.au / By Greg Canavan / February 11th, 2013
Reporting season kicks into gear this week, with big hitters Commonwealth Bank and Rio Tinto, among others, reporting. It will be interesting to see whether the market takes any notice of what’s actually happening on the ground, or whether it will continue responding to the enormous flows of capital produced by the escalating currency wars.
Dan Denning pointed out last week how the rally in the Aussie share market was a product of a weak yen. That is, as the Bank of Japan threatened to weaken the value of the yen (because the Government of Japan threatened it), everyone got the message and started selling yen and buying anything in its place.
And Aussie equities have been a favoured destination for the yen sellers. Especially the Australian banks. They have absorbed a huge amount of the incoming capital flows despite a slowing local economy. The banks remain the defensive and offensive asset class of choice. They sit at the heart of Australia’s financialised economy, inhaling interest repayments and fees from the debt soaked household sector and exhaling dividends to the investor class. They are Australia’s largest and most liquid companies…just what currency traders need for quick speculations.
Of course the banks aren’t the only beneficiaries. Most Aussie large caps are enjoying a bit of the action. So the Australian share market is having a very good currency war. Fundamentals play second fiddle to capital flows…at least for the moment.
Although that may change this week as reporting season heats up. Rallies built on speculative currency flows are inherently fragile. In this late stage of the modern money system, capital doesn’t know whether it’s coming or going. So it comes and goes. It is fleeting.