Markets Are Tense as War Heads Into Its Second Week
After a weekend timeout, war-riveted financial markets in Asia and elsewhere headed into today’s activity optimistic but still tense, analysts said Sunday.
The market in Tokyo, where the trading day dawns many hours ahead of the trading day in New York, was off 1% in early trading, for example.
News that emerged from the Persian Gulf while exchange floors were dark over the weekend appeared likely to affirm the direction that markets took late last week, when traders followed gulf developments minute to minute and often sent prices up or down sharply in response to events unfolding on live television.
“There’s no question about it. The market’s very, very emotional,” said Mark Donahoe, vice president of institutional trading at Piper, Jaffray & Hopwood Inc. in Minneapolis. “If you’re a trader, you love emotional markets. It’s different if you’re an investor. What do you do?”
Early Monday in Tokyo, the dollar opened at 132.12 yen, down 1.48 yen from Friday’s close. The dollar strengthened mildly during morning trading.
At midmorning, the 225-issue Nikkei Stock Average was down about 250 points, or just over 1% from Friday’s close.
A small amount of profit taking was evident in the stock market early Monday morning. The market mood was calm, traders said, reflecting stable moves in foreign exchange and bond markets.
Donahoe and others predicted that many investors will stay on the sidelines, while those who decide to go ahead and play the markets can enjoy big profits or suffer big losses on the wild swings that can occur in volatile trading.
“It seems to me that if the news continues to be good, which is how I think most people perceive the news coming out of the Middle East, the market will continue to act well,” Donahoe said. “I think at the first sign of anything that’s going against the allied troops, my guess is the market will tail off.”
Stocks and bonds did well amid the initial euphoria that accompanied early reports that the war was going well for the U.S.-led forces battling Iraq. Oil took a steep dive as traders decided no threat to Mideast oil seemed likely.
Analysts said the key development over the weekend was Israel’s decision to launch no immediate retaliation in response to Iraqi missile attacks on several cities in the Jewish state, as well as the apparent success of U.S. weapons used to destroy Iraq’s Scud missiles while they were still in the sky.
Israeli involvement in the conflict could pose a threat to the international coalition lined up against Iraq, and it could signal that the war will be longer and more painful than many people thought at first.
“The thing that people were most concerned about was that Israel would come into the war,” said Mike Casey, an international economist with Maria Ramirez Capital Consultants Inc. in New York. “Right now, it looks like the anti-missile interceptors are doing pretty well. Still, I think people would be foolish to be too optimistic about this.”
After the war broke out, perhaps the biggest surprise was the record decline in oil prices, which helped to lift other markets. Oil had reached a high of about $41 per barrel a few months earlier, when traders feared that the war could threaten Saudi supplies. But it fell below $20 per barrel on Friday, to levels not seen since before the invasion.
