Japan Uncertainty Hangs Over European Markets
Economy: Japan Disaster
- First I would like to underline the sadness of the human tragedy resulted from the earthquake in Japan. The human tragedy is certainly the primary concern at this stage.
- While it is too early to assess what the global implications of the Japanese situation we can forecast that the several disruptions in Japanese productions (e.g. semiconductors where Japan accounts for 1/5 of World production) will have, at least in the short term, a global impact. This warrants cautions in global markets that, given the uncertainty, will remain volatile in the upcoming weeks.
Europe:- The increase in the rescue fund to 450 billion and a permanent fund after 2013 was received with mixed feelings. In the current proposal the fund will only be able to buy from the troubled governments directly - and with conditions - Leaves the European Central Bank on his own in deciding how and when to stop the government bond purchasing programme.
The ease of conditions for Greece was seens a positive development but, to some critics, not sufficient.
- Among the several divisions there is the one about short selling. To some EU countries this would be problematic as it will probably reduce liquidity for their debt. Others, like France and the EU financial services commissioner propose a short selling restriction that will protect some of the more vulnerable EU countries.
- One of the important outcomes of the meeting is the commitment to a tighter policy and fiscal coordination. This includes a tighter budget and debt oversight. While not yet fiscal union this is a crucial step in guaranteeing the future of the Euro.
Much depends on the concrete outcomes of the 24-25 March summit.
The big question for investors is if European growth can thrive despite the various austerity measures.
- Depending on the Japanese situation the ECB might temporary delay the rate hike but, on a longer term, I don’t see inflationary pressure to disappear.
Energy costs that will result from the closure of several nuclear energy facilities in Europe might also impact price stability. To note that a number of interest raise will benefit earnings in several European banks, particularly Italian ones (JP Morgan Report).
Markets:
- We are now in period of high volatility and forced liquidation across the board. Fear and uncertainty are back in the markets. While much depends on the news coming out of Japan, markets are likely to continue their correction in the upcoming weeks. This will present some more compelling buying opportunities, especially in the European markets.
- As the situation in Middle East didn't stabilize yet I think that Oil will remain highly volatile in the months to come but close higher in 2011. ( This said Demand/supply balances in the aftermath of the Japanese disaster are difficult to forecast )
Reader Commentary
at 06:03 am
I sat watching the earthquake unfold that day. It was like what only the bible has documented..nothing like this in our time. Even the Hiroshima bomb I do not believe was this devastating.I watched as the Tsunami took its direction towards the north and east. I went to bed very sad. My thought was on the just created relation and bonding between Ghana and Japan.Just within months , a once advance and rich state is brought on its knees by the laws of nature. The level of growth which has not been sustained had finally taken its toll on all the people.Then from the next day the reactors started to create radiation . As if the earthquake itself had not been bad enough.
We all know with out a doubt that this is just the beginning of the hardships and uncertainty. For a quick fix, I will recommend what I always have preached. Transfer of successful economic development and sustained projects and successful development models on the global economic front..
In fact the Japan crisis is only a subject in the object of global crisis. I am looking at a formidable force to save the globe from even yet to emerge crisis. The irony is how both man made disaster and nature strike and have the same adverse effect.
It is gone beyond the issue of boarders and territory I am happy about the major decisions to halt the building of reactor globally for accessment.
I want to propose Solar energy as an undeniable source of energy in the intermediate solutions, whiles exploiting for a more dynamic form of energy which could propel maximum global capacity. look at the complications that are going around in the sub-regions due to the West quest for cleaner source of energy.Lands are being bought for bio fuel cultivation at the detriment of food crops. Are we going to transfer models of development to these country to create a balance in yet to be exploited territories and sub-regions? If we do not get it right, the trans-Atlantic trade could easily be repeated. I however believe that the lessons of the past offers us clear cut dimensions of success stories and failures over the ages.
We have survived as a species above other species. There is an untapped and unexploited bit of the earth still made available the the same laws of nature..ARE WE GOING TO GET IT RIGHT THIS TIME?YES WE CAN. I am calling on the African leaders to shift their attention to the 24 th/25th summit. There is a critical need to create a central government with adequate and democratic credentials to handle the globe and a central government with responsibility for every living human being, animal and plant. The way forward is biodiversity, sustained growth and economic advancement...
at 03:57 pm
I read the documentary on Japan's tragedy effect in the global economy. The effects can be categorized in three level:
1. Human Tragedy
2. destruction of inputs of production
3. Inflationary effect on the economy.
where as category 1, is a question of apathy, number 2 is right now the main concern since it may have a long term effect to the economy and people's lives.
No. 3 will depend of how the world economy responds to many variables now influencing the world economic order.
However Japan being a strong economy, containment of the nuclear power station's emission is core to its recovery.
Should the other economies like Iran continue to invest in nuclear power?