Markets Expected to Take Latest Iraq Attack in Stride
Financial markets, practiced now in the art of war, are largely expected to shrug off news of U.S. military action against Iraq when markets open today, but trading will nonetheless be tentative for the next few days.
The United States attacked Iraq with cruise missiles Sunday, aiming at what it says was a nuclear weapons site on the outskirts of Baghdad. Earlier, a U.S. jet shot down an Iraqi warplane in a no-fly zone in northern Iraq.
But like last week, when U.S. and allied forces bombed Iraqi positions in the south of the oil-rich country, investors are expected generally to take the renewed warfare in stride, perhaps reacting initially, but then returning to where they were.
“It appears to be another selectively targeted strike,” said Thom Brown of Rutherford Brown & Catherwood, referring to the cruise missile strike. “I see no impact at all on financial markets.”
Like others, Brown differentiated between a limited action and a full-scale resumption of the Gulf War.
“The only impact would be if it escalates into another situation with more (allied) troops,” he said.
Oil prices are expected to jump initially, in what analysts say is a knee-jerk reaction to anything that happens in the sensitive area.
Analysts note, however, that Mideast oil supplies are not currently being threatened by the resumption of military action and that Iraqi oil sales have been banned since Iraq’s invasion of Kuwait in August, 1990.
Some even argue that attacks on Iraq may force prices even lower than they are, because anything that threatens to hasten Saddam Hussein’s exit or his agreement under pressure to strict conditions might lead to the end of the 1990 U.N. embargo on Iraqi oil.
This would push yet more oil out onto an already oversupplied market that already has crude oil futures trading below $19 a barrel.
Wall Street stocks, meanwhile, are also seen rising but on factors unrelated to the strike--a carry over of Friday’s broad-based rally ahead of stock option expirations.
“I would expect the (stock) market would probably open on a firm note,” predicted Michael Metz, Oppenheimer & Co.’s market strategist.
“Any real problems of the market are internal, such as a fear of a speculative blow off,” he said.
“In any case, the willingness of the (allied) coalition to use force to have Iraq comply (with U.N. resolutions) is reassuring,” Metz added.
Currency analysts said they expect the dollar to open higher in New York as investors seek relative safety for their money. But it is then expected to move lower as it did after last Wednesday’s bombing raid.
