March 18, 2011
The overall tone of early news reports on the Japanese nuclear situation is relatively less dire than has been the case in the last few days. Layer on top of that the absence of any major economic report on the U.S. economic calendar, and the market will likely maintain its positive momentum from Thursday. Offsetting this positive mood will be the prospect of active hostilities in Libya following the UN Security Council resolution.
Also helpful is the announcement from economic leaders of world’s largest seven economies, the G-7, that they will be making coordinated interventions in the currency markets to reverse the sharp rise in the value of the Japanese yen. The Japanese currency had been appreciating signficantly in the last few days following the disaster and appeared to further threaten that country’s export-centric economy.
We got a slew of positive economic reports Thursday that confirmed that the pace of economic recovery remained on a sustainable trajectory. The labor market is improving, factory output is increasing, and inflationary pressures, while rising, remain non-threatening.
The prospect of war in the Middle East and its impact on oil prices will likely become a bigger worry for the market following the UN Security Council’s authorization to impose a No Fly Zone in Libya. With the U.S., Britain and France expected to lead the effort to impose the UN decision, oil prices will likely reverse the downtrend of the last few days and start rising again.
Uncertainties related to the fast-evolving picture in the Middle East may weigh on the market today, but the overall tone should largely be positive.
Sheraz Mian
Director of Research
Zacks Investment Research
