China Raises Rare Earth Taxes, As Turmoil in the Arab World Continues

Asian equities performed well today, while European markets were lower in consequence of the ongoing problems in Portugal, and concern that they would spread other Eurozone members. EURUSD, EURJPY and EURCHF were all lower, but Asian pairs performed somewhat better where the worsening Japanese nuclear crisis seems to have had limited impact on sentiment.

In Japan, the government is reported to have ordered residents of the limited risk zone surrounding the nuclear plant to evacuate due to lack of supply deliveries into the region, while Japan`s nuclear safety agency has discovered highly elevated levels of radiation in soil samples from locations at about 2.5 times the distance from the areas found earlier to be contaminated with radioactive substances. TEPCO, the reactors` operator, has also confirmed that the third reactor`s containment vessel may have been breached, indicating that the crisis is now reaching a new level of hazard for the region. 

In Syria, where a number of demonstrators have been killed by security forces in recent clashes, the country`s President Basshar Assad  has promised widespread reforms, punishment for those responsible for the deaths, and multi-party elections. His more flexible approach to the demonstrations may bring some success if the intensity of the protests and revolutions in the rest of the Arab World diminishes in the coming weeks. But given his past record of failed promises, it is highly unlikely that the regime`s opponents will be willing to compromise for half-hearted promises in the longer term. In Yemen and Libya, clashes and chaos are ongoing with no sign of a cooldown.

These events have brought West Texas Intermediate (WTI) to its present levels around $105 per barrel, and there is little sign of a weakening momentum until perhaps the latter half of this year, when the impact of Chinese rate rises and a possible termination of the Fed`s bond purchase programs make their effect felt. The periodical flare-ups of the Eurozone sovereign debt issue does not help either.

Meanwhile, the Fed Chairman seems to be very well aware of the importance of his actions to the market, and is apparently worried about a rash reaction by traders to rumors about the end of the bond purchase program. To avert volatility in the markets that could be the result of uncertainties about his future actions, he is planning to hold four press briefings each year during which he`ll communicate the outlook and the Fed`s vision to the general public. This is definitely a welcome development.

Finally, the rare-earth materials issue between China and the rest of the world is quietly escalating further, as China announces plans to increase sales taxes ten times, curtailing global supply further at a time of globally rising commodity prices and supply shortages. The reactions from the U.S. and Japan are unclear so far, but we`ll be sure to keep an eye on this major issue.