Japan's earthquake biggest replica: the economic one

First of all, my thoughts are with the Japanese people in these difficult moments. I am sure being such a hard-working, disciplined and respectful country they will have no (unmanageable) problems getting over it very soon. 

Earthquakes as big as the one that hit Japan last night are always followed by numerous replicas of different strength. These replicas can last for several days until the tectonic plates 'settle down' again. Well, we have begun to see what can be the biggest and more widespread replicas of said earthquake: the economic one. Few hours have passed since the disaster and we can already see the effects on the markets: oil prices, gold and stocks go steeply down and the german bond and the US dollar go up. Pure textbook reaction.

Cause and effect

All kind of transport to and from Japan is obviously expected to halt for some days after the disaster, and it will take some weeks to fully recover its rhythm while infrastructures are repaired. In purely economic sense this means a break in oil demand for the coming weeks. A break that is likely to temporarily alleviate the big problem the late rise in price was beginning to create. You know how market works when there is fear involved... I would not be surprised if the barrel price falls quite further than its theoretical price taking into account the lack of japanese demand. For now it is already under 100$ for the first time in days.

Credit: Yahoo! Finance

Last night's earthquake can (probably) be the event needed to partially offset the Middle East crisis influence on oil prices and take things back to normal. There has clearly been some behind-the-scene speculative pressure to the oil price thanks to said Middle East crisis, because there is no surge in demand to justify the steep rise... The earthquake will have caught speculators off-guard and some of them may be now undoing their steps, erasing some volatility from the oil futures.

The recovery for Japan will be tough economically, that is for sure. Even though there are no public numbers as of now, the damage (to property and to economic activity) will surely account for many hundreds of millions, so if the oil price stabilized around the 100$ mark it could be a hand for Japan's recovery. And for the world as a whole.

A follow-up will come when more information is available in the coming days.