Daily Market Reports | Mar 17 2011
By Greg Peel
The Dow closed down 225 points or 2% while the S&P lost 2% to 1256 and the Nasdaq dropped 1.9%. The S&P is now one point down for 2011.
I suggested yesterday that Prime Minister Kan appeared to be keeping the world up to date with developments – a far cry from the Chernobyl incident in Russia which saw the first alarm raised by Sweden. The Japanese are renowned for their calm in a crisis, so it has not been difficult for some to question whether the “whole truth” has been coming out. There is, of course, an argument for not creating undue panic.
On Tuesday night Wall Street plunged 300 points on the open and rallied back all day. Value seeking was assisted by news the radiation levels at Fukushima were dropping. We thus saw a recovery in Asian-zone markets yesterday including a 5% rally in Japan. But later news raised alarm over all six Fukushima reactors, suggesting the crisis was worsening.
Then at 11am NY time last night the EU energy commissioner – a tax lawyer and politician – told an EU committee the situation was out of control in Japan and a catastrophe could occur in coming hours. On that little bombshell, Wall Street collapsed again. It mattered not that this moron was only reiterating his words from 24 hours earlier, when he warned of a coming “apocalypse”. He should be shot.
If that weren't enough, stocks continued their slide when the US nuclear chief suggested radiation levels had begun to soar again at Fukushima. There were reports Japan had ordered workers away from the plant. The US embassy in Japan told its citizens to move outside a 50 mile radius of the area – twice the distance suggested by the Japanese authorities.
Just after 2pm, the Dow was again down 300 points. Then a report came over the wires which suggested the Tokyo Electric Power Company had almost completed the connection of a power line to the plant. Once reconnected to power, the disaster could be quickly averted, it was suggested. The possibility is backed up by a General Electric spokesman who noted that the back-up systems at the 40 year-old GE-built plant did not fail as has been the accusation, they simply could operate without any power.
Wall Street subsequently saw a sharp rally from the lows, which took the Dow to a level of down 160 or so. But the rally waned and indices drifted lower to the close.
One might argue that it was the EU commissioner's comments which caused confidence to finally shatter. Unlike earlier sessions, last night Wall Street saw heavy volume. It was still not a case of capitulation, but one feels that unless there is some solid, confirmed good news from Japan soon then capitulation is around the corner.
Listening to commentary from various sources, one can only say there are differing views all round. The technical analyst are now warning of a significant breakdown. Older hands point to fairly rapid market recoveries after both the Kobe earthquake and the Chernobyl disaster. The debate rages as to whether oil should be bought or sold, and the same goes for everything from copper to coal.
It is unclear who might benefit from Japan's economic shut-down and who might be caught in the wake. Apple shares, for example, were heavily sold last night given i-Things rely on chips manufactured in the earthquake zone. US auto companies however stand to benefit given Toyota has been forced to extend its expected production shutdown schedule. Airlines are down, coal companies are up, and uranium producers last night were once again toast. China has announced a moratorium on approvals for new planned reactors.
In short, there's are a lot of decapitated poultry running around in markets, on trading desks, in the media, and among international bodies. Volatility has soared. Having remained previously subdued up to now, last night the VIX volatility index shot up 30% to 31 – into the zone of concern – before dropping back to 27 and then settling at 29.
The oil price also flew back and forth last night, with oil traders claiming they were following the stock market. Added to the mix was news from Bahrain that protesters had been shot. After the big oil price drop on Tuesday night, last night Brent rose US$2.10 to US$110.62/bbl and WTI rose US$1.12 to US$98.30/bbl.
Base metals started the day with a recovery but that soon went pear-shaped, and in the end copper was up 1%, aluminium and tin were down 1% and lead was up 3% as the biggest mover.
The dollar-yen has hit a record low (meaning a record high for the yen) at 79.75. Usually under 80 the Japanese Ministry of Finance steps in to manipulate a pullback but clearly there are other issues to consider right now. Perhaps a globally coordinated intervention could be arranged, analysts suggested last night, given the last thing Japan needs right now is a soaring currency.
Oh and hello – the idiots at Moody's last night cut Portugal's credit rating (as expected) . At the same time Portugal managed to auction E1bn of one-year bonds, but at a steep cost. The euro was thus weaker last night, as was the pound, while the Swissy continues to play safe haven. Throw it all together and the US dollar index was up 0.4% to 76.66. The Aussie lost close to another cent to US$0.9827.
After Tuesday night's big commodity fund-led sell-off, gold found buying support last night to remain steady at US$1396.70/oz. Silver fell another 0.6%.
At the same time stock indices fell into a hole last night, US Treasuries were rushed. The ten-year yield fell 10 basis points to 3.20%. It was a day when the Fed happened to be in buying, but the rush to safety also belied the release of the February producer price index. The headline number jumped 1.6% on the biggest monthly percentage move in food prices since 1974. The core number nevertheless rose only 0.2% to mark its third straight increase.
The SPI Overnight fell 76 points or 1.7%. If that prediction rings true, the ASX 200 should today break 4500.
This is an hour by hour situation. I warned yesterday of trying to catch the falling knife despite the fact that were the situation to be contained in Fukushima then stocks will surely rebound very hard. Were there to be more than the “partial meltdown” being described at present, then Lord only knows. Three Mile Island partially melted down in 1979 but the outer core held fast.
Suddenly everyone's an expert but realists simply admit “what do I know about nuclear reactors?” When you have alarmist folly in Europe matched with conflicting warnings coming from within and without Japan, coupled with news that a power connection may save the day, then we quite simply do not know. Traders today will be watching for any and every piece of news coming out of Japan.
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