The London Organising Committee for next year’s Olympic games decided in its wisdom to put a big digital clock – complete with the “Zion” logo to which Iran takes such exception – in Trafalgar Square. It would count down the 16.43 months until the opening ceremony on 27 July. Never mind that the committee had not yet decided what time the ceremony would begin; 500 days was near enough. Amid modest fanfare it was turned on at half past seven on Monday evening. At all sorts of levels it did not bode well for the games. After ticking for less than 17 hours the clock stopped. Worse, it is built and operated by the games’ “official timekeeper”, Omega.
But at least it is not operated by the Tokyo Electric Power Company, the firm almost single-handedly responsible for a broadly-based equity sell-off yesterday after its nuclear power station ran amok. The carnage on stock markets was even more devastating on Tuesday than it had been on Monday. The share price of TEPCO itself was down by a quarter on the day to a level two thirds below the levels of a year ago. It was exactly the sort of risky asset that investors were keen not to hold.
It was slightly surprising, then, that investors did not make a bigger deal of their exposure to “risky” currencies. The Canadian, Australian and New Zealand dollars initially fell against the US dollar and the British pound but all were able later to make a recovery that saw the five of them head into this morning’s London session very close to yesterday’s starting levels. The laggard was the South African rand, which suffered partly as a result of its risk credentials. It also took a knock because the market anticipates an outflow of investments as Japanese investors redeem some of their $3.9 billion holdings of “uridashi” rand-denominated bonds. The Swiss franc did well enough but did not put in a spectacular performance. Although investors were uncomfortable with risk they were in no mad hurry for safety. Even gold was off its highs.
Although the pound kept pace with the US dollar it had more trouble with the euro. Investors decided that Japan’s near-term economic difficulties, and their implications for the global economy as a whole, would dissuade the Bank of England from any urgent consideration of an interest rate increase. The anti-inflation crusaders at the European Central Bank, on the other hand, would feel no such compunction. As for the US dollar, investors’ reservation was that Japan has invested, and thus far has continued to invest, a lot of money in US treasury bonds. Not only will some or all of that investment flow now have to be diverted into rebuilding demolished infrastructure, the Japanese government might want some of its money back.
The day’s statistics did not really get in the way. Sterling actually went lower after government figures showed a 0.5% increase for UK house prices in the year to January. The euro felt no pain from unexpected declines in ZEW’s surveys of Euroland and German economic sentiment. There was a total absence of surprise when the Federal Open Market Committee announced it would be leaving its policy interest rate close to zero for a 27th month and that it would continue until June to give money away.
Investors might pay a little more attention to today’s numbers but only a couple of them are likely to make any difference. A punchy Euroland inflation rate would cement expectations of a rate increase from the ECB next month. Soggy UK employment data would reinforce suspicion that fears for the global economy might make the Bank of England hold back from an increase.
Three other things will attract investors’ attention this morning. First is the way the Tokyo market has rebounded after two days of losses. Nobody is suggesting it has bottomed out but at least it is not on a one-way street to oblivion. Second is the proximity of the dollar/yen exchange rate to the all-time low it registered in 1995. Third is the downgrade – by two notches – of Moody’s rating for Portuguese debt. But what investors will be watching most closely is CNN’s coverage of the Japanese nuclear situation.