Daily Overview – The massive earthquake and tsunami that rocked Japan on Friday are still being digested by the markets and the extent of the economic ramifications are as yet unknown. Japan’s Prime Minister Naoto Kan described the situation as ‘the worst crisis’ Japan has faced since World War II.
The massive earthquake measured 8.9 on the Richter scale and is the largest earthquake since 1896 and the 5th largest earthquake ever measured. Japan, a country that is well trained for these types of events, absorbed the earthquake quite easily but the tsunami that came after brought with it massive devastation. A state of emergency has been declared in three of Japan’s nuclear stations due to a fire and the failure of the cooling systems at all three nuclear stations.
The Bank of Japan announced a new stimulation plan to inject a large amount of money into the banking system in order to soften the blow on the Japanese economy. However, this may not be enough to change the gloomy atmosphere in the financial markets; the Nikkei225 is now trading below 9600 points on a 6%+ decline.
Japan, which is the third largest importer of oil, might cut the latest rally in oil prices that was triggered by the ongoing civil war in Libya.
In the past week all major Indices closed the week in negative territory despite the positive closing seen late on Friday. US Retail sales rose 1.0% in February after an upwardly revised 0.7% increase for January. Sharp increases in auto sales, +2.3%, and gasoline prices, +1.4%, were recorded last week. Excluding these two industries, retail sales rose 0.6% vs. a 0.5% increase in January.
The Michigan University Consumer Sentiment Index for early-March fell sharply to 68.2 from 77.5 in the previous month.
An EU meeting held by financial leaders over the weekend reached an unexpected agreement. The EFSF facility will now be able to buy sovereign government bonds at auction, albeit under strict conditions. The interest rate charged on bailout loans to Greece was also lowered by 1% while the maturity for all the program loans to Greece will be increased to 7.5 years. However, Greece will have to continue its structural reforms and speed up the 50bil € privatization and real estate development program that was enounced earlier.
European industrial production numbers were released last week; French industrial production jumped on the back of strong gains in the manufacturing sector. On a monthly basis, industrial production rose by 1.0 %, twice as much as expected.
UK industrial production rose by 0.5%, slightly more than expected and the previous figure was marginally upwardly revised from 0.5% to 0.6%
Industrial production in Italy unexpectedly dropped in January by 1.5% (on a monthly basis). The weakness was led by electricity and gas but production also fell in the manufacturing sector.
EUR/USD: The Euro continued its slide against the U.S. Dollar, from a 4-month high of 1.4039 on Monday down to a low of 1.3916, as the earthquake in Japan and its outcome led to other concerns to the already risk-averse environment resulting from intensified concerns about sovereign debt in the Euro-zone.
Resistance; 1.3960, 1.4001, 1.4039
Support; 1.3885, 1.3854, 1.3832, 1.3800, 1.3750
AUD/USD: The Australian Dollar climbed on Friday following reports of increased industrial production and steady inflation in China. However, Japan’s earthquake triggered a selloff in risk appetite assets like commodities and stocks and the Aussie suffered as well. This morning, the Aussie opened at 1.0150 to the US Dollar.