Radiation Levels Rise in Asia - Oil, Gold, Stocks and the USD Fall

The main focus of the markets remains being the Japanese nuclear issue in Asia, and the Portuguese debt problem and the Libya War in the West. Portugal`s yields are already at unsustainable levels, and there is talk of the President forming a caretaker government to pass a new budget, with the purpose of implementing austerity rules and reinforcing confidence to allow a refinancing of the June redemptions. We doubt that the President will choose this path, since the budget is a major point of contention in the political field, and an aggressive stance may well lead to a backlash from the new parliament, which could potentially complicate an already difficult situation.

Meanwhile, representatives of 40 nations from the E.U., the Arab League and NATO will be meeting in London today to discuss the future of the operations against the Libyan regime. Today news reports speak of the Colonel`s forces defeating and pushing back the rebel army from some of the coastal cities that they had gained on Sunday, but there is no sign of the initiative changing hands as the bombing campaign goes on. Statements from the U.S. side have detailed plans to use low-flying attack planes in ground attacks against the Libyan Army, and it is clear that pressure will be kept up. On the domestic front, a recent poll has shown that support for the Libyan campaign among U.S. Citizens does not exceed 48%, which is the lowest level of support for a military operation at its inception so far, and does not bode well for the president`s popularity if results are not obtained soon. If the campaign ends prematurely, oil prices could naturally see a significant correction.

In Asia, reports of higher-than-natural radiation levels have been emerging across a wide region. USA, Vietnam, Korea, and China have discovered radioactive particles in the air, but the authorities insist that the level of detection remains very low, posing no significant hazard to public health for now. The death toll in Japan has reached over 10,000 as 17,000 people remain missing, while cooling efforts at the reactors continue in spite of very high radiation readings. The latest reported leak of plutonium has compelled the government to publicly discuss plans to temporarily nationalize TEPCO, on the back of complaints that the company has not been responsible and effective enough in battling the crisis. The PM Naoto Kan has described the situation in Fukushima as "unpredictable", while Yukio Edano has characterized the same as being "very grave". 

Interestingly enough, the FX market is somewhat more optimistic today than the stock market, which is performing rather poorly on a global scale. The USD is lower against most peers, but up with respect to USD JPY, which is usually a sign of improved optimism. On the other hand, gold and oil are both lower, but the downtrend does not show a lot of signs of conviction, and could reverse rapidly and easily if the factors that dampen global sentiment once again dominate news reports.