Nikkei corrected upwards

(16.03.2011) The situation at the nuclear power plant in Fukushima seems to have worsened overnight. Nevertheless, the Nikkei rose 5.7%. Today Norges Bank will make its rate decision and issue a new monetary policy report.

By Knut A. Magnussen, Senior Economist at DNB Markets

illustration chartThe Japanese catastrophe caused stock markets worldwide to drop yesterday. European markets fell between 1.5-3%, while the US equity markets fell a good 1%. However, it seems that the negative reaction early in the day was to strong and markets improved during the day. Furthermore, the Nikkei rose 5.7% but has still fallen by a good 10% during the last three days. The yen gained further ground yesterday, but has been fairly stable overnight and USDJPY is trading around 82.0 this morning.  

The situation at the Fukushima plant (250 km from Tokyo) has worsened further since yesterday. Most of the workers have been evacuated and a new fire struck one of the reactors (but should now be under control). In addition another strong earthquake took place, though without any tsunami effects. Enhanced danger of radiation may imply that huge areas will be affected and this also means uncertainty among the population in general. In addition to the damages from the earthquake and the tsunami, lack of energy will also hamper economic activity going forward. The overall effects may hence become larger than after the Kobe earthquake in 1995, even though uncertainty is large. The affected areas count for 6-7% of the overall Japanese economy. The death toll has risen to almost 3.800 while 7.800 are still missing.         

The FOMC meeting did not affected markets much, but US rate rose somewhat after the publication of the statement. The Fed said that the recovery is on a “firmer footing” and that the labour market is gradually improving. In addition the statements focused on the higher oil price. As expected that the Fed seems to look at core inflation and inflation expectations, which both have been fairly stable since the former meeting in January. There were no new signals regarding monetary policy. QE2 will proceed as planned and the Fed funds rate will remain low for an extended period.   

There were few key indicators released yesterday. In the US the Empire State index rose somewhat, and the same was the case for the NAHB index. However, the housing market pessimism has not at all been removed. In Germany the ZEW index fell, while a small increase was expected. However, the drop may have been caused by the events in Japan and the high oil price.

Today Norges Bank will present a new rate path together wit the rate decision. We expect a somewhat higher rate path due to higher foreign interest rates and improved economic conditions abroad. On the other hand the NOK is stronger than forecast by the central bank in October, indicating that the signal rate should stay low.  

Yesterday we updated our macro score. This month the overall picture was fairly balanced, with worse developments for the household sector and improved data for companies.  The overall score for China fell and Sweden still has the strongest recovery, Japan the weakest.