Time of interventions

Following the UN’s resolution, Western forces were quick to strike at Qaddafi, making sure that with (hopefully) situation getting under control in Japan investors’ attention was going to move back to Africa.   

For the markets they key medium-term implications may come from possible external effects. On top of Libya, Tunisia and Egypt protests were taking places in countries like Yemen, Oman, Bahrain, Syria, Algeria, Morocco or even Saudi Arabia (in a limited scale). The question is now if intervention in Libya is not about to encourage protesters elsewhere and many of those countries are rich in oil. Furthermore, intervention may complicate picture in the region especially as some will try to illustrate it as an assault on the Arabs’ world (condemnation from the Arab League could have been striking for some in the West).

Generally, unless there is an escalation of tensions elsewhere, the issue might be slowly fading out from the market. However, keeping in mind what has happened following a trivial-at-first turnaround in Tunisia one should stay vigilant and keep an eye on those issues. The mechanism will work in a similar pattern: a rise of tensions = higher oil prices = negative impulse for equities. 

Less bad news from Japan?

Japanese and the US authorities reported over the weekend that the Japanese slowly regained control over a nuclear plant. Furthermore, some Japanese corporation vowed to restart their operations (Sony, Nissan). On the other hand, abnormal levels of radiation were discovered in nutrition from the affected region. Nevertheless, normalization at the plant is the key thing as it eliminates a scenario market feared the most – a paralysis of the Japanese economy.

Consequently, there is a room for the markets to rebound following a tumble which took place in the first part of the previous week. Asian markets rise today (China, South Korea are up, Japanese market is closed for holidays today) despite a fresh reserve ratio hike in China.

Events to watch – Trichet and home sales

Last week brought about some important and in many cases surprising data (especially US PPI and housing starts) yet these were completely overshadowed by developments in Japan. Even though this factor might be losing influence on the sentiment and the markets shouldn’t be shocked by what’s going on in Libya as well, the list of economic releases for this week doesn’t look like a strong competition either. So our bet is that Libya/M.East will dominate the first part of the week and perhaps the EU summit may attract some attention on Thursday and Friday.

Today the key (calendar) events are: Trichet’s speech in the European Parliament and the report on the US used home sales (consensus 5,15 mln). Both at 10.00 ET, 15.00 CET).   

Przemysław Kwiecień PhD, Chief Economist

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