Equity markets dive due to concerns over Japanese nuclear power stations

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The carnage in stock markets was even more devastating on Tuesday than it had been on Monday. The reason, the Tokyo Electric Power Company, which is almost single-handedly responsible for the falls in the equity markets yesterday.

It was slightly surprising, then, that investors did not reduce their risk to "riskier" currencies. The Canadian, Australian and New Zealand Dollars all fell initially against Sterling and the US Dollar but recovered during the course of the day to open this morning only marginally higher than yesterday morning.

The straggler was the South African Rand, which suffered badly as as Japanese investors sold some 3.9 billion of rand-denominated bonds. Strangely, investors weren't too uncomfortable with the risk they were holding and in no mad hurry for "safe haven" assets.

Although Sterling kept up with the US Dollar on the Foreign Currency Exchange market it didn't have a good day against the Euro. It seems that the short-term difficulties in Japan and the impact it could have on the global economy will prevent Bank of England MPC members from increasing interest rates in April. On the other hand, the anti-inflation missionaries at the European Central Bank don't have the same concerns; the Euro strengthened to a four and a half month low against Sterling at £/€1.1477.

Yesterday's data releases were overshadowed. Sterling went lower despite a 0.5% increase in UK house prices in the year to January, while the Euro resisted an unexpected fall in ZEW's surveys of the Eurozone and German economic sentiment.

Even the US Federal Open Market Committee announcement that interest rates would be left on hold for the 27th month garnered a response.

Today's data features the Eurozome inflation rate which could cement expectations of a rate increase from the ECB next month. A poor UK employment report may reinforce suspicion that fears for the global economy might make the Bank of England hold back from an increase.