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Part 1: Daily Breakdown

Here we summarize the key events each day. These are the starting point for part 2.

In part 2 we cover our conclusions and lessons to apply to the coming week and beyond.

Daily Summary

Here's a quick breakdown of the week's key market moving events from which we begin to draw lessons for the coming weeks.

Monday

Asia

Japan, China closed other indexes up modestly

Europe

Indexes were overall lower mostly modest moves no specific reason. Perhaps uncertainty regarding G7 and G20 meetings results on Greece, Cyprus, and most importantly, statements against competitive devaluation aimed at Japan? Spain was down over 1% (ongoing jitters on political uncertainty?).

The EUR gained a bit on Bundesbank head Weidmann's comments that EUR was not overvalued. Those comments are significant because Germany, as the world's #2 exporter, suffers from a stronger EUR more than others, and so might oppose a strong EUR. However the traditional German fear of inflation keeps the Germans on the side of a stronger EUR, despite the potential pressure on exports. The GIIPs block favors a weaker Euro to help their less competitive economies.

US

Flat, with Japan and China shut and Europe quiet, along with uncertainty ahead of US retail sales data. Improved home prices data had no effect.

Tuesday

Asia

All indexes were up, Japan nearly 2% on US comments that supported a weaker Yen, implying the US would support Japan against possible opposition at the G20 meetings later in the week, which many expected could reveal opposition to Japan's move and threats of countermoves in the new "race to debase" (aka currency wars). However it's hard to believe that Korea and other Asian exporters will, allow Japan to gain export advantage via a cheaper JPY for long. Other indexes far more modestly higher.

Meanwhile the JPY continued to fall.

Europe

All indexes were up solidly, a half to one percent, Spain almost 2 percent, although there was no clear reason for the move other than follow through from Asia's strong closing on hopes for more stimulus.

US

US indexes were modestly higher overall, though the tech-heavy Nasdaq was slightly lower, pressured by Apple shares falling as CEO Tim Cook made no mention of hoped-for dividend hikes.

Wednesday

Asia

Almost all indexes higher, but Japan was down as the JPY rises in response to G7 officials voicing concerns over "excessive" Yen weakness. The rally in Japanese stocks over the past months has been based mostly on hopes of ongoing JPY weakness that would boost Japanese exports. The JPY, and thus Japanese stocks, will be sensitive to negative and positive remarks about the Yen devaluation policies from these meetings

Europe

All indexes were up solidly, Spain nearly 1%, on a combination of good earnings news, a successful Italian bond auction, and decent EX factory output data. Traders noted, however, that European growth is likely to be weak for the foreseeable future, and that the US is expected to be the strongest, making EU firms with more exposure to the US more attractive than those focused on Europe or emerging markets.

US

US indexes and other risk barometers finished flat on a lack of news that wasn't in line with expectations. Perhaps the biggest news was that a feared decline in US retail sales DIDN'T happen. It's been feared that the payroll tax cut expiration's reduction of take home pay would hit consumer spending. It didn't, as retail sales reported in line with expectations.

Indeed the in-line but still weak 0.1% increase in monthly retail figures reinforced expectations that easy monetary policies would continue and prop up stocks and other risk assets. Yes, that means the US goes deeper into debt, the USD is at greater risk of devaluation once the economy improves. However more stimulus means inflated stock prices in the near term, and THAT is what passes for good news these days.

It's a market for short term traders, not long term investors.

However don't relax yet. As we noted last week here, BofA's David Woo warned that spending habits don't adjust automatically to changes in income. Just as consumer spending increases didn't take effect for a few months after the payroll tax cut in early 2011, so too it could take a few months for spending to drop.

Moreover, workers furloughed if automatic budget cuts from the sequestration due to hit March 1st would further pressure consumer spending.

Thursday

Asia

Almost all indexes were modestly higher, no clear reason.

Europe

Indexes were down hard, typically around 1%, on weak EU growth data, even after they had recovered somewhat from session lows after bullish US weekly jobs data.

US

Indexes were flat, which, given all the negatives, could be taken as a sign of resilience. Those headwinds include carnage in European on poor growth data and markets being near decade highs and thus vulnerable to a similar sell-off. What kept US markets steady? A combination of countervailing good news on weekly jobless figures

Friday

Asia

Indexes were mixed, with Japan down hard on caution ahead of the G20 meeting statement to be released Saturday. Japanese stocks have been moving in the opposite direction of the Yen for months, on the belief that a weaker Yen means stronger earnings. Then Yen has been moving down, and stocks up, with headlines that fed hopes for further JPY weakness, and vice versa.

The big concern over the past week was that the G20 meeting statements might emphasize opposition to competitive currency devaluation in general, and in the worst case, single out Japan in particular. That would suggest future pressure on Japan to support the Yen, and risk killing the rally in Japanese stocks, and in the USDJPY and EURJPY.

Europe

Indexes closed mixed, mostly making insignificant moves up or down. There was no market moving news.

US

Indexes were mixed and essentially flat on a lack of market moving news.

Please proceed to part 2 for conclusions and lessons for this week and beyond.

Disclosure/disclaimer: No positions. The above is for informational purposes only. All trade decisions are solely the responsibility of the reader.

Source: Prior Week's Lessons: Growing Gap Between Prices And Reality - Part 1