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Financial Focus

GLOBAL equities have fallen by more than $1.6tn over the past two days, but analysts believe that this may have been excessive as there is little evidence of any liquidity or solvency problems. Many economists argue that shares were long overdue a correction, and that investors took the opportunity to come out of their more risky positions as Japan’s crisis unfolded. A growing number if investors now appear to be taking advantage of the low prices, and this trend is likely to gain momentum if the nuclear-reactor risks in Japan subside.

EUROPEAN ministers made a dramatic turnaround yesterday as they debated a nuclear-free Europe and agreed that the continent’s 143 nuclear power plants must be put through stress tests. EU member states have been at the forefront of a nuclear energy revival, but the fear of a nuclear disaster as seen in Japan, has called into question reliance on this form of energy provision.

PORTUGAL’S sovereign debt rating was cut from A1 to A3 and assigned a negative outlook by Moody’s, who said that Portugal’s continued reliance on external financing hindered its position. It added, however, that Portugal was making progress in its labour market reform and noted its efforts towards fiscal consolidation.

MARKETS:

YESTERDAY saw markets tumbling around the world, with European markets sinking to a 15-week low, and with US markets dropping as traders indiscriminately sold anything risky. Equities recovered some ground during the day, and losses were reduced on both sides of the Atlantic.

OVERNIGHT, the Nikkei surged 6% in early trading as the Bank of Japan pumped another ¥5tn into the financial system to ease liquidity after Tokyo suffered its worst two-day drop in 24 years. The MSCI Pacific Index added more than 3%, with more than three stocks gaining for each that fell.

TODAY, European markets are expected to open mixed, with investors eyeing the overnight progress in Japan cautiously. The Dax is likely to continue to struggle, however, as the index is heavily exposed to the nuclear energy sector and because of the US’ high-level of trade with Japan.

CURRENCIES:

THE EURO rose to its highest levels for four months against sterling yesterday, on growing expectations that the ECB will raise interest rates in the coming months, while the BoE is not seen to be willing to change anything in the UK until at least September. The euro fared less well against the dollar overnight, however, as Portugal’s debt rating was cut by two steps from A1 to A3 by Moody’s.

ENERGY:

OIL prices plummeted below $110 yesterday with trader’s anxious that an economic standstill in Japan would stifle demand from the world’s third largest economy. Natural gas prices in Europe climbed to a 2-year high as Japan will seek supplies of LNG to bridge the shortfall left by damaged nuclear plants.

COMMODITIES:

GOLD recovered some ground from its one-month low of Tuesday, but analysts warned that speculators could sell bullion to raise liquidity if equities extend their losses. Copper, zinc and nickel rose more than 1% overnight on speculation that Japan’s reconstruction needs will boost demand in three to six months.

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