Business Sectors Strive for Calm
Guardians of the global economy sought Wednesday to stare down fears of a worldwide recession after the terror strikes on the U.S., promising generous funding for recovery and reliable supplies of oil to curb price hikes and panic-buying.
In contrast to expectations and to free falls Tuesday, stock markets around the globe rebounded, although the jangled nerves of shareholders and brokers were apparent in the roller-coaster fluctuations of stock values throughout the day. Japan’s Nikkei index fell below the 10,000-point mark for the first time in 17 years, but most European markets recovered some of the previous day’s losses. London’s FTSE-100 index rose nearly 3%, Frankfurt’s DAX gained 1.44% and the French CAC-40 closed 1.34% higher.
The dollar also gained ground against other major currencies--proving its resilience even after one of modern history’s most devastating crises. The U.S. currency gained more than 1% against the euro.
Crude oil prices fell from a three-month high after the Organization of Petroleum Exporting Countries promised to ensure a steady flow and maintain its control over prices.
Private industry also stepped in to shore up confidence and offer consolation, with companies like Germany’s Bertelsmann media empire pledging millions to aid the families of police, firefighters and rescue workers killed at the World Trade Center.
The European Central Bank announced an emergency tender of $63 billion, and the Bank of Japan made almost $17 billion available, calming fears of a monetary crisis in the wake of the terrorist attacks.
ECB President Wim Duisenberg said his institution and central banks in the 12-nation euro zone stand ready to help stabilize the global economy. But he said it was “far too early” to decide on interest rate adjustments. The ECB governors were scheduled to meet today, and analysts expected intensified pressure for a third cut this year in the bank’s key lending rate, now at 4.25%. The U.S. Federal Reserve has cut rates seven times this year to reach its current 3.5%.
Influential economic watchdogs urged the ECB to act immediately.
“The bank shouldn’t hesitate for a minute in cutting rates to give a monetary shot in the arm,” said Thomas Straubhaar, head of the Hamburg World Economy Archive, one of six institutions that produce semiannual forecasts on the German economy, the world’s third largest. Italian economics professor Giorgio Di Giorgio predicted that the ECB would “want to wait for a more precise assessment of the economic losses and of the oil price dynamics.”
Despite continued shock, there were also voices forecasting economic comeback if the key players in Europe, the United States and Japan resist temptation to hunker down. Economists at the German think tank Rhine-Westphalia Institute for Economic Research in Essen said the tragedies could be a catalyst for global recovery if U.S. officials can galvanize confident defiance instead of fearful retreat.
“There are no grounds for building up a crisis scenario,” German Finance Minister Hans Eichel said after talks with his colleagues in the Group of 7 industrialized nations. “I am sure markets and traders are reacting in a reasonable manner.”
Dark Days Forecast for Travel Industry
Economists, though, warned of dark days ahead for airlines, hotels and recreation centers, fearing a major falloff in travel, especially if U.S. forces retaliate against nations suspected of giving succor to terrorists.
In Frankfurt, Germany--Europe’s financial capital--business and finance sought to present an unflinching face to the world, ignoring public safety officials’ advice to close skyscrapers, stock markets and other icons of capitalism that might be targets. Bomb scares emptied the city’s towering Messeturm office building as well as the Foreign Ministry in Berlin. But workers returned to both structures after searches for explosives turned up nothing.
Gold and bonds, which benefited from Tuesday’s panicked rush for financial havens, lost some of those gains as investors timidly returned to equity markets and the dollar.
OPEC’s swift action to calm nervous markets was one of the most influential factors in halting--if perhaps only temporarily--Tuesday’s slide into despair. The 11 OPEC countries, which pump 40% of the world’s crude oil, have reduced output by 4.6% this year in an effort to maintain a per-barrel price of $22 to $28. Although prices hovered around that upper margin Wednesday, the $28.02 close was well below recent highs that exceeded $30.
“OPEC’s members are prepared to use their spare capacity, if deemed necessary” to keep prices under control, Secretary General Ali Rodriguez said in a statement that seemed to soothe the financial world. “All member countries remain committed to strengthening market stability and ensuring that sufficient supplies are available.”
Gestures of Condolence at the Stock Markets
In one of many gestures of condolence Wednesday in the business world, Europe’s major stock markets and exchanges paused for a minute of silence exactly 24 hours after the first hijacked plane smashed into the World Trade Center. Elsewhere, auto makers scaled back their usually glossy opening events at the Frankfurt Auto Show, and chief executives across the continent joined government leaders at memorial services to commiserate with U.S. colleagues.
Already struggling as the world economy has slowed, European airlines are expected to be hit hard by the crisis if fewer consumers opt for foreign vacations in the wake of the deadliest hijackings in aviation history. Leading tour operators, such as France’s Club Med and the German charter group Kuoni Reisen, have shed as much as 25% of their market value this week.
The insurance industry is also considered vulnerable.
Switzerland’s reinsurance giant, Swiss Re, reported potential claims of $730 million from the insurance companies it covers, and Germany’s Munich Re said its exposure could exceed $900 million. No firm figures have emerged projecting the full cost to insurers for property damage, disruption of business and loss of life, but analysts said the claims could reach $30 billion.
Europe’s No. 2 insurer, Allianz in Munich, Germany, sought to assure the financial world that the U.S. attacks won’t bankrupt the industry. “We are prepared to handle large catastrophes of this nature,” board member Herbert Hansmeyer said.
Although the terror strikes threaten some business sectors, providers of security services and equipment are likely to see rising demand and share values. Stock in Sweden’s Securitas, the global leader in security services with 20% of the U.S. market, climbed as much as 14%, and British rival Securicor rose nearly 7%.
The largest maker of airport scanners, PerkinElmer of Wellesley, Mass., is also expected to benefit from stepped-up security at airports worldwide, along with Honeywell International and Metorex Security Products of Ewing, N.J.
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Special correspondent Maria De Cristofaro in Rome contributed to this story.
