|
The mounting nuclear crisis in Japan roiled financial markets this morning, crushing stocks, driving down commodities such as oil, gold, and shaving more than 2 cents off the Canadian dollar .
“This is a safe haven rising story,” said Elsa Lignos, senior currency strategist at Royal Bank of Canada Europe in London, citing the uncertainty in Japan in the wake of the devastating earthquake, tsunami nuclear crisis.
“Developments in Japan are critical to near-term risk sentiment,” Ms. Lignos said. “With sentiment falling so rapidly, any indication of further blasts or rise in radiation will impact already shaky markets.”
In Asia, Tokyo’s benchmark Nikkei plunged a further 10.6 per cent as some of Japan’s biggest manufacturers, from auto makers to electronics and power companies, were hit on the market. Hong Kong’s Hang Seng fell 2.9 per cent, and the Shanghai composite 1.4 per cent.
The turmoil quickly spread to European stocks when trading began. Germany’s DAX was down by more than 5 per cent by about 6:30 a.m. ET, while the Paris CAC 40 shed 4.1 per cent and London’s FTSE 100 3 per cent.
North American markets were poised to follow suit, with Dow Jones industrial average and S&P 500 futures both down sharply.
"Canadian markets are being caught up in a classic risk aversion trade this morning, with the Canadian dollar down more than 1.5 cents from yesterday’s close, to now stand at US$1.011," said BMO Nesbitt Burns deputy chief economist Douglas Porter.
"Bond yields are dropping by 6-9 basis points along the curve, with the 2-year falling the most (to below 1.6 per cent) as prospects for [Bank of Canada] tightening are fading fast. And, stocks are also poised for a marked pullback as commodities are sagging (oil at $98) and U.S. futures are deeply negative."
Scotia Capital currency strategist Camilla Sutton noted today that recent that recent events are all negative for the loonie, but postive for the U.S. currency.
"Japan is the third largest economy in the world and the combination of the earthquake, followed by a tsunami and now the rising nuclear threat is undeniably negative for Japanese and global growth," Ms. Stutton said.
"[The Canadian dollar] is a notably pro-cyclical currency, performing well during periods of global growth and underperforming when global growth fades."
Amid the turmoil, what's happening in currency markets today could cause Japan additional trouble.
“The Japanese currency continues to get pushed higher by yen repatriation flows to pay for rebuilding, while stock markets look set to plummet across the globe this morning after the Nikkei again fell hard in trading today, dropping to 18 month lows,” CMC Markets analyst Michael Hewson said before trading began in Europe.
“The last thing Japan needs now is a strong yen which would hamper the exports it needs to try and rebuild what is already a highly indebted public sector economy.”
" What will the Fed talk about today?? "..
" for years we have warned that what is needed is more productivity and investment in agriculture " ...
The Federal Reserve looks set to hold monetary policy on a steady course Tuesday, even as lofty oil prices and increased uncertainty following a devastating earthquake in Japan raise doubts about the economy's path.
The worst earthquake on record in Japan, the world's third largest economy, could have substantial ripple effects on the global recovery. But with the impact unclear as of yet, economists say the best thing for Fed officials to do at the moment may be nothing at all.
Even before the tragedy, U.S. central bankers faced plenty of confusing signals. For one thing, higher energy costs appear to be nudging U.S. inflation expectations higher, the first inklings of an inflationary psychology that the Fed would be loathe to see take hold.
"It's very tricky because calling out an increase (in expectations) would be a meaningful move in a hawkish direction," said Andrew Tilton, economist at Goldman Sachs.
At the same time, not acknowledging the recent pick-up seen in both market indicators and consumer surveys might make the Fed appear out of touch, eroding its inflation-fighting credentials.
In a statement due around 2:15 p.m. ET, policymakers are likely to nod to recent improvement in the economy while seeking to avoid any suggestion that they intend to cut short a $600 billion bond-buying program announced in November.
Fed officials will likely do so by beefing up their assessment of economic conditions while emphasizing just how far the central bank remains from its targets for both inflation and employment.
PROMISING SIGNS AND WORRY
Since the Fed's last meeting in January, the U.S. economy has continued to show signs of promise. The U.S. unemployment rate has fallen rapidly, down to 8.9% in February from 9.8% in November.
Still, the pace of hiring suggests further progress will be painfully slow for the 8 million-plus Americans who lost their jobs during the economic slump of 2007-2009.
At the same time, higher gasoline costs have injected a new note of worry among consumers, with a big hit to confidence this month raising concerns about whether a recent spurt in consumer spending can be sustained.
The U.S. economy expanded at an annualized rate of 2.8% in the fourth quarter, a respectable performance but one not seen fast enough to restore the job market to full health anytime soon.
Some economists thought growth could near 4% this quarter, but have pared back projections, in part because of an unexpected widening in the U.S. trade deficit.
The Fed chopped overnight interest rates down to effectively zero in December 2008 and since then has committed to buying a total of some $2.3 trillion in mortgage and Treasury securities to keep long-term borrowing costs down and support the recovery.
Those plans have proven controversial, with domestic critics arguing the Fed is courting future inflation while officials in emerging markets have accused the central bank of trying to boost U.S. exports by devaluing the dollar.
With the economy strengthening, officials are likely to have a vigorous debate on how best to eventually tighten policy, but analysts expect only minor changes to the Fed's statement.
Analysts will have to wait until minutes of the meeting are released in early April to get a fuller flavor of the discussions.
Want to manage currency risk and increase revenue? Learn more about Risk Management
| 
