Global Markets Stage Modest Rally
Relief that the prospects of imminent war in Iraq appeared to be receding drove major foreign stock markets higher Monday, lifted the dollar and further drained interest in gold.
Analysts, however, warned that the easing of concern could be short-lived. European Central Bank Governor Wim Duisenberg underlined the uncertainty with which financial markets and economic policymakers have been living.
“Nobody knows, if the uncertainties become reality, whether it will take three days or three months or even longer for the situation to work itself out,” he told the European Parliament.
But on Monday, at least, bargain hunters had the upper hand overseas, while U.S. markets were closed in observance of Presidents Day. U.S. markets will reopen today.
The main German stock index rose 1.3% to 2,708.97, the French market gained 1.9% to 2,882.12, the British market was up 2.2% to 3,692.40 and the Swedish market surged 3% to 493.91.
With stock prices rising modestly across Europe, “The market is saying that the chances of war have receded, which means the chances of economic downturn are receding as well,” said Lex Wekheim, a fund manager at Eureffect in Amsterdam.
Huge anti-war demonstrations took place around the world over the weekend, with millions of protesters calling on President Bush not to launch a war to disarm Iraq.
Asian Stocks Rise
In Asia on Monday stocks rose nearly across the board.
Share prices in Taiwan surged, lifting the main market index 4.7% to 4,705.08. The rally was the biggest since Oct. 15.
South Korean shares also soared. The main index gained 4.6% to 601.87.
In Hong Kong, the key Hang Seng index rose 181.92 points, or 2%, to 9,383.68.
In Tokyo, the Nikkei-225 index closed at a three-week high, finishing up 0.8% at 8,771.89. It is up 2.3% so far this year, while the U.S. blue-chip Standard & Poor’s 500 index is down 5.1%.
Mexican and Canadian stocks also rallied. The IPC index in Mexico City rose nearly 1% to 5,829.87.
In Toronto the S&P;/TSX composite index gained 1.2% to 6,564.11, helped by Great-West Lifeco Inc.’s takeover bid for Canada Life Financial Corp.
Analysts said the foreign rallies stemmed in part from Wall Street’s rebound on Friday, when the Dow Jones industrial average rose 158.93 points, or 2.1%, to 7,908.80.
The Dow was up 0.6% for the week, after four straight losing weeks.
The Nasdaq composite index jumped 32.73 points, or 2.6%, to 1,310.17 on Friday, fueled by some stronger-than-expected earnings reports from technology companies.
Nasdaq rose 2.2% for the week, cutting its year-to-date loss to 1.9%.
Some foreign investors expressed skepticism that stocks can continue to surge in the near term, with war still a strong possibility before spring.
“We are not convinced this is the rally people are looking for,” said David Thwaites, European strategist at BNP Paribas.
Selling Commodities
But in commodity trading some speculators in oil and gold opted to sell on Monday, taking profits from the recent fear-driven rallies in those markets.
IPE Brent crude oil futures were lower in London, with April futures losing 44 cents to $32.06 a barrel.
On Friday, the U.S. benchmark crude oil, West Texas intermediate, rose 44 cents to $36.80 a barrel, a 29-month high, in New York futures trading.
Traders’ sentiment toward oil also was weakened Monday after an OPEC source said the Organization of the Petroleum Exporting Countries would probably suspend output quotas and pump at will should war halt Iraqi crude supplies.
The price of gold, which fell in U.S. trading Friday for a seventh time in eight sessions, continued to decline in Europe on Monday, hitting seven-week lows.
Gold was at $346.50 an ounce in London, down from $351.90 in New York late Friday.
“The gold market is saying that war is not a certainty, despite the fact that [U.S. Secretary of State] Colin Powell is still talking tough,” said Paul Lee, precious metals director at Dresdner Kleinwort Wasserstein in Sydney, Australia.
“With investors still holding massive long positions and the market struggling to get back above $359, further liquidation should be expected with $338 the probable target,” Standard Bank London said in a report.
A relaxation of worries also helped boost the dollar Monday. The U.S. currency gained 1% against the euro and Swiss franc.
The euro traded as low as $1.068 before rising back to $1.074. That still was down from $1.079 in New York on Friday.
Late Monday, the 15 leaders of the European Union said in a draft statement obtained by Reuters that U.N. weapons inspections cannot continue indefinitely in Iraq without cooperation, but that force to rid the country of weapons of mass destruction should only be used as a last resort.
“At the margin this development in the EU is dollar-supportive because a lot of this stuff is at least mitigating the near-term risk of war,” said Marcel Kasumovich, head of G-10 foreign exchange strategy at Merrill Lynch.
