Dow Up 114, Oil Falls 33% on Early Signs of Short War : Markets: But Iraqi attack on Israel sobers investors worldwide. Japanese stocks falter, then close higher.
The Dow Jones industrial average leaped 114.60 points Thursday and the price of oil tumbled by more than $10 a barrel in New York--its biggest one-day drop ever--as financial markets throughout the world responded with glee and, later, fear to news from the Middle East.
For most of the day, investors in the skittish financial markets were electrified by reports of successful allied bombing raids on Iraq. They bid up prices of stocks and bonds, apparently assuming that Saudi oil facilities would not suffer major damage and that stability would soon return to the Persian Gulf.
Crude oil prices fell by an extraordinary one-third in value on the New York Mercantile Exchange, closing at $21.44 a barrel. In Europe and the United States, gold and the U.S. dollar--which usually rise in times of crisis--plunged, as speculators concluded that a U.S. victory was close at hand. Gold dropped more than $30 an ounce to $397 in New York trading.
“The statement by investors is pretty much the same across the globe--and it is one of euphoria,” said Gavin R. Dobson, president of Murray Johnstone International, an investment firm in Chicago. But he added prophetically: “My gut feeling is that it’s not going to last.”
It didn’t. Late-breaking news of the Iraqi missile strike on Israel swiftly deflated the Tokyo stock market, which had begun the day in a buoyant mood, rocketing up 400 points--roughly 2%--in the first 20 minutes.
However, reports that Iraqi missiles had reached Israel sparked a frenzy of trading. Within 10 minutes, the morning’s gains were lost and the Nikkei average had sagged more than 100 points below Thursday’s close.
The turnaround occurred so quickly that traders became confused. In one case, Tokyo traders were pushing down the price of Tokyo Electric while, on the neighboring Osaka Exchange, prices of the electric company’s shares were still rising.
Reports of the missile attack pushed up oil prices in Japan more than $3 a barrel in early Tokyo trading, but they quickly gave up half the gain. Stocks also recovered somewhat, with the Nikkei average closing up 229.58 for the morning. The early ebullience was gone, however.
“Nobody can tell what will happen if Israel is brought into the war,” said Yoshio Ogawa, general manager of Nikko Securities’ equities operations.
The huge price swings, evident in Asia, Europe and the United States, astounded veteran analysts and threatened to overwhelm rumor-prone markets with a torrent of orders to buy and sell. Trading was ordered to stop for an hour on the New York Mercantile Exchange after crude oil prices went into a free fall earlier on Thursday.
Brief halts to maintain orderly trading--known as circuit breakers--also kicked in on the New York Stock Exchange, affecting some program trading, and the Chicago Mercantile Exchange.
“The last time we had a watershed day like this was when the stock market crashed in 1987,” said William V. Sullivan Jr., director of money market research at Dean Witter Reynolds in New York. “There have been visible changes in just about all market arenas” in the world.
Tom Bentz, director of trading at United Energy, a New York-based futures brokerage firm, gave this explanation: “There seems to be a lot of optimism that this thing will be over soon. All the signs look pretty good, but I worry when you get so much of a one-way attitude. Even the President is saying, ‘Don’t be too optimistic.’ It leaves me a little bit apprehensive.”
Signs of sinking oil prices were a powerful tonic to financial markets that have been hammered since August by the oil shock. Hours before Iraq’s missile attack on Israel, investors shared a collective sigh of relief that the crisis might soon end, removing a major question mark from the world economy. In frenetic trading, crude oil for February delivery plunged in global markets.
“Confidence is soaring,” declared Lee Wilson, a stock specialist who helps maintain orderly markets at the Pacific Stock Exchange in San Francisco for shares of Chrysler, Eastman Kodak and Xerox. “I’ve been in this business years, and the only thing I can compare this to is the boost we got after the Cuban missile crisis.”
The financial roller coaster began more than 24 hours ago, when Japanese investors heard news reports that the U.S. air raids on Iraq and Kuwait had begun.
As had been widely predicted, stocks dipped at first, but news of allied success quickly raised hopes of a speedy victory. On Thursday, the Nikkei average had its 10th-largest advance in history. The key index rose 1,004.11 points, or 4.47%, to 23,446.81.
The rally quickly spread to Europe. Germany’s key market index soared 7.5% Thursday to register the largest single-day advance in its history.
In London, stock prices surged from the opening of trading, as brokers tried to keep an eye on the latest news developments while responding to the gush of telephone calls and market reports. The Financial Times 100-share index finished up 49.8 points, or 2.4%, at 2,104.6.
“The catchword today is relief,” said Martin Paling, international investment strategist at James Capel & Co. “Relief that something is happening and relief that the news today appears to be more positive than might have been expected. There’s a very strong feeling all around that the initial action by the allies has been extremely decisive.”
At the New York Stock Exchange, brokers streaming in early Thursday morning had reason to expect an up day; oil prices had plummeted overnight and bonds had staged a tremendous rally, which lifted the price of the U.S. Treasury’s 30-year bond by almost three points.
Security was tight. Uniformed and plain-clothes security employees stood behind blue barricades on the sidewalk outside the building, checking workers’ identifications before letting them inside. The public gallery was closed.
When the opening bell clanged at 9:30, there was a minute of silence for the military personnel involved in the war. Then another bell, a burst of applause, and trading exploded.
The closing 114.60-point gain by the Dow Jones average of large corporate stocks to 2,623.51 was the second largest ever. The record gain remains the jump of 186.84 points on Oct. 21, 1987, after the famous crash that occurred two days earlier. Volume on the floor of the Big Board came to 318.89 million shares Thursday, the eighth largest on record at the exchange, dwarfing the 134.56 million Wednesday.
“It’s basically a collective sigh of relief that the Saudi oil facilities don’t appear to be in danger, and that the United States is prevailing more easily than anticipated,” explained Robert D. Hormats, vice chairman of Goldman Sachs International, an investment bank.
For most of Thursday, markets for gold and the U.S. dollar behaved in textbook fashion: Each sign that the crisis was ebbing seemed to take away some of their value. In U.S. trading, the dollar fell nearly 4 pfennigs against the German mark, nearly 2 cents against the British pound and more than 4 Japanese yen.
When fighting first broke out, “the first reaction was to buy dollars,” recalled Richard D. Lloyd, manager of the Los Angeles-based foreign exchange operations of Bank of America. But within 30 minutes of the first news reports, the dollar began falling “and has been down continually since then.”
Staff writers Scot J. Paltrow in New York, Jeff Kaye in London, Victor Zonana and Jonathan Weber in San Francisco, Jesus Sanchez in Los Angeles and Leslie Helm in Tokyo contributed to this story.
