warning Hi, we've moved to USCANNENBERGMEDIA.COM. Visit us there!

Neon Tommy - Annenberg digital news

US Stocks Fall Despite Japanese Gains, S&P 500 Hits 2011 Low

David McAlpine |
March 16, 2011 | 1:09 p.m. PDT

Executive Producer

American stocks fell sharply Wednesday amid fears of instability in Japan as the nuclear crisis at the country’s Fukushima Daiichi plant grows, despite unexpected gains made by Japan’s Nikkei index overnight. 

U.S. indexes tried to make a positive turn near the end of the trading day, but it was not nearly enough to recover from the day’s losses. The NASDAQ closed about 1.5% down and the Dow Jones closed more than 2% down. The S&P 500 also hit a low for the year in the middle of the trading day.

Both the Dow and the NASDAQ dropped early, and failed to recover much after the European Union’s energy chief and the French interior minister both said Japan was losing control of the situation.

Analysis say the European commentary did not help US markets, but the discrepancy between American and Japanese indexes was also due to housing numbers and a new low in the US dollar’s value.

The Washington Post reported:

The yen strengthened to a 16-year high versus the dollar as the risk of radiation leaks increased speculation that investors needed to bring home yen.

Investors were also reacting to a slew of other bad news that came in the hours before the market opened: increasing violence in Bahrain and U.S. housing construction numbers and wholesale costs that were worse than expected.

The Commerce Department reported Wednesday that housing starts had fallen 22.5 percent in February to an annual rate of 479,000 units--the steepest decline in 27 years. Building permits, which indicate future construction demand, were at record lows, signaling what some analysts said was more underlying weakness in the housing sector.

The increase in the yen’s strength came as a surprise to many financial officials after the 8.9/9.0-magnitude earthquake struck Japan on Friday. Analysts have said it was the government’s intervention of the currency that has led to recent increase.

Bloomberg reports:

The yen may continue to strengthen as investors unwind carry trades amid reduced demand for assets from higher-yielding countries. In a carry trade, investors borrow where yields are low, such as in Japan, to fund purchases in higher-returning countries.

The carry trade of borrowing in yen and selling it to buy the currencies of Australia, Norway, New Zealand and Brazil has lost 45 percent this month, according to data compiled by Bloomberg. That compares with a loss of 22 percent using the U.S. currency and return of 8.3 percent in the yen in January and February.

Japanese investors own about $3.9 billion of rand-based Eurobonds, known as uridashi, more than the $3 billion of Brazilian reais and $765 million in Turkish lira, according to data compiled by Bloomberg. Japan’s mutual funds held 2.8 trillion yen ($34.6 billion) in Brazilian stocks and bonds as their fourth-largest foreign assets, leaving the real among the most “vulnerable” during the selloff, HSBC Holdings Plc said.

The yen has strengthened 3.9 percent since Japan’s strongest earthquake on record last week caused a 7-meter (23 foot) tsunami that engulfed the northeast coast and damaged nuclear reactors.



Craig Gillespie directed this true story about "the most daring rescue mission in the history of the U.S. Coast Guard.”

Watch USC Annenberg Media's live State of the Union recap and analysis here.