Review Markets After Japan Quake: Rather Hold Gold Than Silver? (Guest Post)

By Prieur du Plessis

During and since the massive Tohoku earthquake that hit Japan on March 11, global financial markets have been characterised by a high degree of volatility. I thought it would be worthwhile to compare how the different markets reacted and what trends I could pick up.

Dian L. Chu graphs

Sources: I-Net Bridge; Plexus Asset Management.Hard currencies were particularly volatile. The euro was by far the most stable of them all. In the following chart I depicted the yen, US dollar and British pound against the euro. The yen initially strengthened significantly against all currencies, but intervention saw the currency weakening significantly until a day or two ago.

The US dollar weakened from the outset, while the British pound was relatively strong. The Eurozone’s debt woes surfaced again at the start of the week, when the euro weakened significantly against other currencies.

In comparing the major stock indices, I decided to do so in terms of euro instead of US dollar, as is normally done, due to the latter’s relative weakness.
It is very interesting that, until the end of last week, the MSCI Emerging Market emerged as the stronger equity market, followed by MSCI Europe. Since then the euro has weakened while European shares have fallen.

Dian L. Chu graphs

Sources: I-Net Bridge; Plexus Asset Management.The yields on 10-year Government notes initially fell immediately after the earthquake, but rose strongly afterwards on expectations that Japan’s earthquake will have limited impact on the global economy. Japan was the exception where the yield remained relatively steady, though. 

Over the week of April 17, the yields on the respective government bonds turned south again, probably due to the fact that Japan’s recovery from the disaster will be more prolonged than originally anticipated.

On Monday, April 18, two issues came to the fore: Firstly, German bond rates fell as Greece indicated that the country wants to reschedule debt. That refueled worries about the debt situation in the region and the possible impact on regional growth. Secondly, US Government debt was de-rated by Standard & Poor’s, resulting in a rise in the yield on the 10-year US Government note as bond prices fell.

Dian L. Chu graphs

Sources: I-Net Bridge; Plexus Asset ManagementIn comparing the commodities, I have also expressed them in terms of euro instead of US dollar in light of the latter’s relative weakness. Silver was by far the best-performing commodity since the day before the Tohoku earthquake. Next was oil, followed by gold. Industrial metals were soft compared to the other commodities.

Dian L. Chu graphs

Sources: I-Net Bridge; Plexus Asset Management

Dian L. Chu graphs

Sources: I-Net Bridge; Plexus Asset ManagementIs somebody pulling off a Hunt Bros type of cornering of the market as in 1979/1980? I will rather hold gold than silver, but will not short the latter!

But where does it leave the markets?

Prieur du Plessis is chairman and founder of South African-based Plexus Asset Management.  Professor extraordinaire teaching investment management at the University of Stellenbosch Business School, Prieur also maintains a blog at Investment Postcards from Cape Town.

The views and opinions expressed herein are the author’s own and do not necessarily reflect those of EconMatters.

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