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Japanese Earthquake Hits U.S. Commoditiy Markets

posted on March 16, 2011

Hello, I'm Mark Pearson. Time for March Madness... ...not on the hardwood, but on Wall Street, where the Dow staged a second-half comeback this week, despite bearish reports on the U.S. housing sector; the threat of inflation and uncertainty over the economic impact of last week's catastrophic earthquake and tsunami in Japan.

According to the Commerce Department, new housing starts plummeted 22.5 percent in February as builders broke ground on the fewest new homes in nearly two years.

Applications for building permits -- a barometer of future construction -- fell more than 8 percent last month, to their lowest level in more than 50 years.

Meanwhile, the Labor Department's Producer Price Index rose a seasonally adjusted 1.6 percent in February... twice the rate of inflation noted at the wholesale level in the previous month.

The spike was due, primarily, to higher food prices, which surged nearly 4 percent in February in their largest monthly gain in more than 35 years; and a commensurate 3.7 percent spike in gasoline prices

The bearish reports, combined with growing tensions in Libya and uncertainty over the economic impact of the catastrophic earthquake and tsunami in Japan, prompted sell-offs at equity and commodity exchanges. Markets rallied late in the 2nd half of the week but not enough to recover losses in previous sessions. And one week after the category 9.0 temblor devastated Japan, the only aftershocks rivaling those experienced in Japan were felt in the markets.

Japanese Earthquake Hits U.S. Commoditiy Markets

As Japan copes with the aftermath of last week's disaster, the total human toll and economic impact are still far from being fully known.

Dr. Neil Harl, Iowa State University Economist: "My sources tell me, the tsunami caused a lot more damage to the unloading facilities, earthquake didn't it was the tsunami, and that we will see some impact there. We'll also see their resources reallocated -- and reallocated to construction."

Despite the island nation's crowded population of 127 million, Japan will need fewer imports of food and fuel -- at least in the immediate future. And investors are assessing the impact of the earthquake, tsunami, and subsequent nuclear energy crisis.

Shareholders created an earthquake of their own as the realization dawned there will be fewer imports of food and fuel to the island nation, as well as fewer exports of computers and other technology.

In the week since the massive earthquake and tsunami rocked Japan, global stock exchanges were volatile. The Nikkei lost 10 nearly percent of its value at the beginning of the week. Between Monday and Wednesday, The Dow Jones Industrials Average plummeted, shaving off more than 400 points to settle well below the 12,000-mark. Equity markets staged a comeback later in the week, but remained volatile.

Financial markets reflected the uncertainty over the disaster's economic impact in Japan as the Yen surged to post-World War II highs against the dollar before rallying later in the week.

No safe haven was to found in the commodity markets either. At the beginning of the week, the nearby crude oil contract lost nearly 5 percent of its value in the biggest single decline in 13 months. But it too rallied later in the week.

Virtually no trading sector was left untouched as the agricultural commodity markets experienced a shake-up their own. On Tuesday, prices for corn, soybeans, live cattle, and feeders all traded limit-down. But markets bounced back later in the week.

No matter the short-term impact, investors remain nervous about Japan's future, and the estimate for getting the world's third-largest economy back on its feet has been pegged at $200 billion.


Tags: disasters earthquakes Japan markets news storms tsunamis weather