By Greg Peel

The Dow closed down 51 points or 0.4% while the S&P lost 0.6% to 1296 and the Nasdaq fell 0.5%.

Please note the US went on to summer time over the weekend. For the next three weeks the NYSE will close at 7am Sydney time before Australia reverts to standard time on April 3 after which the NYSE will close at 6am Sydney time.

In the light of the tragedy in Japan, one feels rather uncomfortable dissecting financial market impacts in terms of the potential for wins and losses. However wins and losses there are, and pragmatism is required in this context.

Yesterday in Australia the market opened weakly and became weaker in the morning session as the natural response was simply to sell. The world's third biggest economy has been hit hard and there remains a high level of uncertainty, especially surrounding potential nuclear disaster. However the buyers soon entered the market seeking value, and were specific in their sector choices. The result was a close not nearly as weak as the nadir.

Exactly the same thing happened on Wall Street last night. The initial sell-off, which saw the Dow down 147 points at its low, was followed by a buyers' surge into specific sectors. As was the case in Australia, uranium stocks were hard hit on the wider implications of the threat to nuclear as a viable alternative energy source. Shares in General Electric tumbled given GE built the reactors at Fukushima.

The flipside was strong performances from coal companies, alternative energy companies and what there is in the way of LNG companies. Australia saw strong counter-movements from the likes of Woodside ((WPL)) and Santos ((STO)) yesterday on the basis that LNG is a clear alternative to lost nuclear power both immediately, and perhaps even permanently. This disaster may just be the catalyst needed to take aspiring but struggling LNG projects to commercial status. America consumes almost all of its own natural gas so is not really in the game of LNG export. Australia, on the other hand, has been exporting LNG to Japan for decades.

Alongside LNG as an energy source for power production is thermal coal – the cheapest source of all. Greenhouse gases are not quite as dangerous as radioactive clouds. But while the world dithers on carbon pricing, the potential set-back to nuclear energy again brings solar, wind, geothermal et al squarely back into the frame.

For all commodities, it is a case of the “now” and the “then”. While thankfully the tsunami proved most devastating in a less populated region of Japan, the disruption of power outages, transport chaos and pending nuclear threat is causing a knock-on effect across Japan's manufacturing sectors, and Japan is first and foremost a manufacturer to the world. Japan's car industry, for example, has been shut down. While many car factories are perfectly functional across the country, the sudden unavailability of some parts has exposed the downside to Japan's “just in time” inventory systems. The electronics industry is in a similar boat.

What this means in the short term is a drop in the demand for steel (thus iron and coking coal), copper, aluminium etc as Japanese factories lay idle. With the threat of further aftershocks, tsunamis and nuclear meltdown the extent of such shutdowns is unknown. But what is known is that at some point Japan will begin to rebuild, and when it does it will need vast amounts of those commodities it currently cannot use. The “now” means weakness in global commodity prices but the “then” means strength.

The story is similar for oil. One only need be astounded by images of hundreds of cars bobbing like corks in the waves and being deposited atop buildings to appreciate Japan's demand for crude oil will drop sharply. Refineries are also shut down and thus will not be buying. But with refineries out of action, Japan will need to import refined products such as diesel to make up the shortfall and to get on with clearance and reconstruction.

Oil traders agree that front month crude futures would have been lower last night on the Japan effect if not for an offsetting development in the Middle East. At the request of Bahrain, Saudi Arabia last night sent troops to guard Bahraini oil facilities against the growing unrest. The troops marched under the flag of the Gulf Cooperation Council (Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, UAE) to mimic a sort of UN-style peace-keeping mission.

Once again I note that developments on the Arabian peninsular are not simply one of democracy-seeking protesters against the incumbent rulers. It is also one of Shi'ite versus Sunni, and analysts fear an unwanted response from Shi'ite Iran if unrest escalates along sectarian lines.

Oil last night was thus slightly weaker with Brent down US35c to US$113.59/bbl. West Texas was slightly higher. Base metals were mostly subdued with the exception of lead and zinc, which jumped 4% and 2% respectively on news of smelter closures in Japan.

On the currency front, all attention has turned to the yen. The yen's initial response to the quake was to rise on the expectation of funds being repatriated to pay for the clean-up and rebuild, but yesterday the Bank of Japan announced a US$183bn injection of funds into the system which included the stepping up of asset purchases (QE). The move is intended to stabilise fearful financial markets, and as yet no fiscal measures have been announced. The increase in the supply of yen thus undermines its value.

Ultimately the US dollar index fell 0.5% last night to 76.33. The Aussie fell by a similar amount to US$1.0105. No doubt with nuclear meltdown in mind, gold jumped US$10.90 to US$1427.70/oz but this time silver was steady, putting on its industrial metal hat.

With all that's going on around the globe at present – from Japan to MENA and the eurozone – US Treasuries are again finding favour despite uncertainty over the upcoming end to QE2. Last night the ten-year yield fell five basis points to 3.35% to be close to the lows marked a year ago. Will there be a QE3? Analysts remain divided. Tonight the Fed will release its latest policy statement.

The SPI Overnight fell 5 points.

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