Share prices surged around the world yesterday as financial markets celebrated the arrival of American armour in central Baghdad and anticipated the imminent collapse of Iraqi resistance to US and British troops after less than three weeks of fighting.
With dealers betting heavily that the short war in the Middle East will be the catalyst for economic recovery, traditional havens of gold and government bonds were abandoned in favour of an equity buying spree.
Traders said the upbeat mood in the markets came despite widespread signs of weakness in the global economy, and was a response to optimism that the show of strength by American armoured divisions in the Iraqi capital spelt the end for Saddam Hussein’s regime.
At the close in London, the FTSE 100 Index was up 121,4 points at 3935,8, its highest level since mid-January. Wall Street’s Dow Jones industrial average was trading 180 points higher during the day in New York although later gave up some of the gains to close up 23,26 at 8300,41. In Europe, the fifth successive rise in stocks took them to levels not seen for four months.
”For many weeks fears of a long war hit stocks worldwide, and with the sudden US move overnight that may indicate a short war, and the market rallied sharply,” said Alan Ackerman, chief market strategist at Fahnestock & Co.
Some analysts said they were optimistic an end to the war would see the start of an economic recovery, which would in turn fuel further rises for stock markets.
”Hopefully oil prices will fall back, the daily routine of decision making by consumers and businesses will resume and a short time after that the underlying tone of the economic numbers should start to improve,” said Mike Lenhoff, chief strategist at private client fund managers Brewin Dolphin.
Dealers also believe that equity markets will be underpinned by rate cuts from the Federal Reserve and the European Central Bank in the coming weeks. Recent poor economic data on both sides of the Atlantic has been ignored, with sentiment driven by progress in the military campaign.
In the commodity markets yesterday, the price of gold tumbled by $5 an ounce while the price of crude oil reversed sharp early falls to close just three cents lower at $24,65. At one stage, Brent crude was changing hands at $23,40 a barrel, but the downward move was reversed when the oil cartel Opec proposed an emergency meeting to discuss output cuts. US crude eased 28 cents to $28,33 a barrel.
Abdullah al-Attiyah, Opec’s president, said he had proposed an emergency meeting for April 24 to prevent a post-war fall in oil prices. ”My main worry is how to deal with the dramatic price drop,” said Mr Attiyah, the oil minister for Qatar, after discussions with the Opec secretary-general Alvaro Silva.
The cartel is concerned that prices, already down 30% from their pre-war peak, could continue dropping to below its $22-$28 trading range unless cartel members rein in supplies. On the foreign exchanges, the dollar continued to rise, hitting a four-month high against the pound and gaining ground for the fifth day running against the euro. – Guardian Unlimited Â