The ‘Bin Laden effect’ has already floundered
City Index May 3, 2011 9:33 PM
<p>The news of Bin Laden’s death prompted a spurt of euphoric buying in the markets, with the Dow Jones hitting new highs and the German […]</p>
The news of Bin Laden’s death prompted a spurt of euphoric buying in the markets, with the Dow Jones hitting new highs and the German DAX climbing to its highest level in three years. But what does Osama Bin Laden’s death really mean for the financial markets? City Index Market Strategist Joshua Raymond explains.
When news of Bin Laden’s death at the hands of a US navy seal team first filtered into the markets both the public and the financial markets were euphoric. No sooner did people chant “USA” at the White House and Ground Zero that investors began buying into risky asset classes, speculating that the markets would get a similarly euphoric jump. They were not wrong. The Dow Jones hit a new high of 12,876 whilst similar jumps were seen in European indices, with the DAX climbing to 7600, a level not seen for over three years.
However, these impressive and sharp gains quickly reversed towards the end of the session and already appear to be a distant memory in investor minds during Tuesday’s trading session. Why? Because the effect of Bin Laden’s death in fact means very little to the markets apart from that of which we cannot see.
There are both positives and negatives to emanate from the world’s most wanted man’s death in terms of the markets. On the plus side, it is a devastating blow to Al Qaeda and may have served to severely disrupt their terrorist plans for the next few years. This in turn gives potential for a longer term sense of calm in the Middle East and pressurises oil prices, which is a positive for equities. It also lessens the possibility of one-off large events of mass terror such as 9/11 or 7/7 in the near to medium term, which can cause volatile market shocks.
The negatives as highly speculated by senior officials both in the US and the UK are that in the short term at least, there is a potential for retaliation attacks. Should there be so, and depending on the gravity of such an attack, this could trigger near-term volatility in the markets.
Long term impact of Osama Bin Laden’s death
In the longer term, does the death of Osama Bin Laden actually change anything? If anything, it could well inspire more extremists to join their cause, a belief indeed uttered by Bin Laden himself. Moreover, the US went in for Bin Laden undercover with no pre-warning or courtesy to Pakistan. This could have negative ramifications for trade relations within the region for the US.
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