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Why Currency Wars Might Be Coming

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Currency wars are coming: Toyota Motor's happy, BMW is not. I've been talking about the coming currency wars for a while now. In Europe, the euro rally continues, at a 2.5-year high against the dollar, the yen collapse continues.

The U.S. at least gives lip service to a strong dollar, but Japan's Shinzo Abe has ignited the current currency wars by openly, blatantly declaring his intention to reflate Japan's economy by weakening the yen. The current head of the Bank of Japan will step down in April and will certainly be replaced with someone who will do Abe's bidding.

(Read More: Japan Leader Urges Swift Action From Central Bank)

Remember, one country's weak currency is another country's strong one: it's a zero sum game. In the past, currency wars have led to protectionism and capital controls, as well as tariffs as countries seek to protect their industries. Look what happened in the 1930s and 1970s when the U.S. finally abandoned the gold standard and devalued the dollar.

The rush to cheapen the yen and the dollar, which has left the euro appreciating, is creating headaches for policymakers all over the world. The Brazilians are furious at the Americans, since it has increased the cost of exporting goods for them. They already have a weak form of capital controls.

Other policymakers have had to cut interest rates to weaken their currencies.

The worry: This could become a serious issue and undermine the global recovery.

(Read More: What Could Really Spark a Currency War)

The U.S. has been lucky, funding our trade and budget deficits with foreign investor money. But the weakening of the dollar lowers the value of those holdings overseas, particularly for the largest holders — Japan and China. Will they keep buying our debt under these conditions?

Elsewhere:

1) Strange rally in stocks on a tepid jobs report. Though the January nonfarm payroll report was below expectations, traders have focused on the significant upward revisions for November and December.

Regardless: You would not particularly expect the market to rally on a lackluster 157,000 jobs number, with expectations of 168,000. The household survey was also not impressive at 7.9 percent

A clearer explanation might come from looking at fixed income: The bond market is rallying on this news, and that may be the reason stocks are up. With employment now part of the Federal Reserve's target, this indicates the Fed will continue its current programs.

Another possible influence: The first day of the month traditionally sees new money inflows.

2) One of my favorite companies reported strong earnings, but gave a very muted outlook on the global economy. Ingersoll Rand beat on top and bottom line, but 2013 guidance of $3.45 to $3.65 a share is in the middle of the $3.59 a share consensus, but first-quarter guidance is weak. Full-year 2013 revenue guidance of $14.2 billion to $14.6 billion is at the low end of the $14.6 billion consensus.

CEO Michael Lamach said, "We expect to be a slow growth economy in 2013." Expecting continued weakness in North American non-residential construction, and a "moderate increase in demand levels" in North American consumer markets.

The company is important because almost half of its revenue comes from outside the U.S. It is in refrigeration and air conditioning, locks, tools, pumps, and many other businesses.

3) Four consecutive weeks of inflows into stock mutual funds, according to Lipper, bringing their four-week total to $20.7 billion-their largest four-week total since the period ended April 12, 2000.

4) Global markets were higher overnight. China's Shanghai Index was up 1.4 percent as "official" manufacturing numbers were still above 50 (indicating growth), but not as strong as expected. The Shanghai Index was up 5.6 percent for the week.

5) Your pet will rejoice: Zoetis (ZTS) priced 86.1 million shares at $26 each, above the $22 to $25 a share range, raising $2.23 billion, the biggest initial public offering since Facebook.

Zoetis is an animal-medicine maker, a spin-off of Pfizer — think vaccines for pets and livestock. It is the largest company in the animal health industry.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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