Market Talk

First, dear readers, an apology. We’ve been pretty consumed with the live launch of the Markets Hub, and that combined with our regular job, the Market Talk service for the Newswires, plus features like The Upshot, has pretty much given us no time lately to write for this blog.

But, we do have a post today, or rather, a cross post, of something I wrote for the MarketBeat blog over at WSJ.com. And, look, if you’re a regular reader of this blog, and like the mix of opinion and analysis we’ve offered here, I’d recommend you start watching the Markets Hub, live daily at 10:30 a.m. on wsj.com.

Here’s the post:

How many more body blows can the global economy absorb? Three more? Two? One?

Japan’s economic recovery is “a thing of the past,” at least according to Japan’s Cabinet Office, which said so in its monthly report. It shouldn’t come as a surprise, given what the Japanese have endured over the past month, and officials are hopeful that the economy can regain its footing by the end of the year.

The combined earthquake/tsunami/nuclear crisis is more than most nations could handle, and we hope for nothing but the best for the Japanese people. But when the world’s third largest economy sees its economy stall, it should be a red flag for everybody.

There are other red flags, too. The U.S. economy limped into the end of the first quarter, as consumers contended with flat wages (should they be lucky enough to have wages at all) and rising prices.

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I found an interesting contrast between this outlook, from Ed Yardeni, president of Yardeni Research, and this one from Peter Morici. What I find interesting is the divergence; two guys who from my reading of them are both in the conservative camp, but with wildly different takes on what’s going on.

I don’t know that I have some brilliant insight into what all this means. I just found it very interesting, and seeing as this is Market Talk, well, here’s some talk.

From Yardeni:

What’s driving the global economy? For the past two years, it has been the boom in global manufacturing, led by demand for manufactured goods in emerging economies. The OECD index of global industrial production rose 0.9% m/m and 6.9% y/y during December to a new record high. It is up 15.3% since the most recent cyclical trough during January 2009. It had plunged 12.2% during the most recent downturn.

It should continue to grow this year. There are certainly challenges confronting global manufacturing. High food and fuel prices may depress the purchasing power of consumers around the world. Concerns about rising inflation are pushing central banks to tighten their monetary policies, particularly in emerging economies. Serious disruptions to global supply lines are already an issue for the auto and technology industries. It is difficult to assess how long these problems will persist.

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US stocks are poised to take a breather, at least initially, after a three-day rebound that has seen equities erase early last week’s swoon, with index futures essentially flat.

“The coalition forces continue to patrol the skies over Libya and the markets continue to recover,” says Alastair McCaig of WorldSpreads.

Asian stocks were modestly higher except in Japan, where trading was closed Monday for a holiday and responded with a 4.4% jump overnight in the Nikkei.

Quiet on the US economic data front, though quarterly reports from the likes of Walgreen (WAG), Jefferies (JEF), Carnival (CCL) and Discover (DFS) come this morning.

Meanwhile, the dollar continues to lose ground after the ICE Dollar Index hit a 15-month low Monday, with the pound reaching 14-month highs this morning against the greenback.

S&P futures down 0.20, Dow futures up 12. Crude futures and 10-year US Treasurys edge lower. Oil at $102.94.

Stocks are rally. So is oil.

US stocks are spring-loaded for an early burst higher, goaded by big M&A news (AT&T’s $39B deal for T-Mobile), reports that Japan is gaining control over its nuclear plant crisis and rallying markets in Europe.

Chatty week for the Fed, with a host of speeches scheduled for the central bankers, while the data calendar is relatively thin. February existing home sales set for 10:00 a.m. ET, and new home sales due Wednesday. Other data include February durable goods on Thursday and a third look at 4Q GDP Friday.

Oil running higher, nearing $103/barrel. S&P futures up 14.80, Dow futures up 111. Ten-year note slides, yield at 3.33%.

There were two things I saw last week that put the fear of God in me. Both came Wednesday. One seems to be improving; the other remains a wild card, and that’s why I bring it up.

That was the first time I saw close-up pictures of the mangled Fukushima Daiichi nuclear plant. The walls that contain two of the reactors are completely gone. The upper third is missing from another. Seeing those pictures, it was pretty obvious to me that a total meltdown was a very real possibility. Those pictures were worth more than 1,000 words, and every word was absolutely shocking.

The Fukushima 50 have had some success in stabilizing the plant as of Sunday, and I fervently pray they are ultimately successful. God bless their courage. Were that others were so dedicated.

The second thing caught my attention Wednesday was the yen’s frenzied spike just after 5 p.m. New York time. The yen, which had been strengthening since last Friday’s earthquake, suddenly broke through all resistance and spiked higher. Lightning fast. Straight up. It was a black-swan kind of thing. Shorts were forced to sell, and that only contributed to the rise. It was chaotic.

“I can almost guarantee you that a few (hedge) funds out there were hurt very, very badly,” Dennis Gartman, who edits and publishes The Gartman Letter, said via email.  “No one ever escapes that sort of action entirely.”

I’ve had the feeling since last Friday that the ramifications of Japan’s nightmare are going to be larger than people initially suspected, and they are going to end up in places where people don’t expect, and in a world as tightly connected as the one in which we live, that increases the odds that one haywire event will have a cascading and destructive effect. Something like the yen’s sudden jerk has the potential to spark a global unwinding. It’s a scary thing to contemplate.

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There are an awful lot of big stories out there right now, and the yen is one of them, so we asked Brad Davis back to explain the latest moves in this critical market.

The images that mollified the markets here in the states today were fuzzy ones of helicopters dumping water on the destroyed nuclear reactors at Fukushima Daiichi, and the statements that mollified the markets were vague assurances of progress in fighting that catastrophe.

There’s also been a general feeling that the area stricken by the triple calamities isn’t economically vital, and the market’s been banking on the idea that the nation’s output won’t be too badly crimped. So long as Tokyo’s okay things will be okay seems to be the general idea.

But the disruption to daily life in Tokyo is growing, and if daily life there is being upended, then the economic effects of the calamity can only grow. I was here on Sept. 11. Nobody fled New York City, even though many wanted to. Everybody worked through a nightmare. I have no doubt that the Japanese people will as well, but this idea that it’s a “well contained” calamity, to borrow a phrase, is starting to look just a bit silly.

Obviosuly the situation in Tokyo is nowhere near as dire as that in the north, but the capital is becoming a very chaotic place itself, as the FT’s Gwen Robinson makes clear in this post that provides a look at the mood inside one of the world’s largest cities, and one of the world’s three major financial centers :

The television showed images of enormous queues at international airports around Japan. Some people, unable to make reservations by phone, went to Narita or Haneda airports near Tokyo to try to buy tickets over the counter.

Train stations were also packed with people trying to head west, particularly expatriate families seeking to relocate to cities such as Osaka, Kyoto and Fukuoka near international airports.

In fact, one expat wife who was taking her children to Kyoto earlier in the week described the bullet train, normally half full with besuited Japanese businessmen and a smattering of other travellers, as a “rolling high-speed nursery,” packed with screaming kids and foreigners all fleeing Tokyo.

On today’s Market Hub, we try to get past the headlines and break down what’s happening with U.S. stocks and the Japanese yen, both of which are under varying degrees of pressure, despite today’s rise in stocks and easing in the yen.

Dennis Gartman touched on the topic of the yen, as he does most every day, in today’s Gartman Letter:

THE PANIC CONTINUES and quite honestly that is all one can say at this point, for the violence of the moves since the close of trading in N. America last evening have been nothing short of astounding. We cannot recall markets such as these since the days more than a decade ago when Long Term Capital Management was collapsing amidst the panic that was the Russian Crisis. That August we can recall the Yen moving 7 “Big Figures” in one day, sufficient to take trader after investor after institution after speculator…bullish and bearish of all markets everywhere… out of the positions with sizeable losses. Such are the markets when panic breaks out.

Gartman makes the point, without coming out and saying it. The horrific events of the past week in Japan, an earthquake followed by a tsunami followed by a nuclear crisis that, are still playing out. You do not know where this crisis is going to lead. Nobody does, and anybody who says the worst is over is trying to sell you something they do not, in fact, own.

Yesterday’s frantic trading in the yen — pushing it to a new record high against the dollar — were stunning in their pace, and even if the forex market doesn’t get as much press as the stock market, it pointed to a big shift in the marketplace. How big, and what else it will affect, remain to be seen.

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