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“Fully Exposed”: Unfolding Disaster in Japan Roils Global Markets

Aaron Task
Editor in Chief
Fin - Daily Ticker - US

Tokyo's Nikkei 225 tumbled 6% overnight and oil prices slid below $100 per barrel early Monday amid a worsening crisis at the Fukushima Daiichi nuclear power plant.

An explosion rocked reactor number three at the plant, less than two days after a similar explosion at reactor number one. In another ominous development, the cooling system has reportedly failed at a third reactor, number two, where the nuclear fuel rods were "fully exposed" Monday morning, according to Reuters.

Japanese officials say only "low levels" of radiation have been released thus far. But more than 200,000 residents have been evacuated from the surrounding area and the U.S. Navy moved the U.S.S. Ronald Reagan further offshore after the aircraft carrier "passed through a radioactive cloud...causing crew members on deck to receive a month's worth of radiation in about an hour," The NYT reports.

As Henry and I discuss in the accompanying clip, financial issues pale in significance to the unfolding environmental and humanitarian disaster. Still, Japan is the world's third-largest economy and global markets are having a dramatic reaction to this natural disaster.

After more than $300 billion of market value was wiped out in Japan overnight, U.S. stocks fell early Monday. Among the hardest hit stocks were reinsurers such as Munich Re, nuclear power producers like Exelon, Shaw Group and General Electric, which built turbines for the ill-fated Fukushima Daiichi plant.

But U.S. averages were not down dramatically in recent trading, thanks in part to renewed weakness in the dollar after EU officials increased the size of their bailout fund and the Bank of Japan pumped a record 15 trillion yen ($183 billion) into the financial system and doubled its asset-buying program, Bloomberg reports.

U.S. crude futures dipped below $100 before recovering amid reports of violent protests in Bahrain. Meanwhile, agricultural commodities such as corn and soybeans fell amid expectations of falling demand from Japan.

In the past five days, Japan has been hit by the one of the worst earthquakes in recorded history, a massive tsunami and now the worst nuclear accident since Chernobyl -- and one with a still highly uncertain outcome. It's fair to say that no market players were thinking about catastrophes of this magnitude when they took on recent positions, much less three in such rapid succession.