LONDON/NEW YORK, 20 March 2003 — Stocks drifted, the dollar crawled higher and oil prices were mixed yesterday as the recent frenzy on world markets abated and investors hunkered down for war.
Stock markets in Europe and Asia resumed their recent rally as investors hoped for a re-run of the 1991 Gulf War when stocks rebounded strongly soon after the first shots were fired.
But trading was light and gains modest, with many dealers sidelined, mindful of the risks of a prolonged conflict.
“What we’re seeing is an easing of the risk premium which has been built up given the uncertainty about exactly how the military events would play out,” said UBS Warburg equity strategist Ian Hartnett.
“There’s now a feeling that the best model that people are using is the 1991 experience and the expectation clearly amongst investors is that the US wouldn’t enter this course of action unless they felt that they were capable of delivering a decisive and rapid solution,” he added.
On European markets, the British FTSE 100 index firmed 0.5 percent to close at 3,765.4 points, the French CAC 40 index added 1.5 percent to end at 2,837.7 points and the German DAX 30 rose 1.2 percent to 2,615.4 points in late deals.
Stocks also gained in Asia, where share prices won 1.2 percent in Tokyo and 1.3 percent in Hong Kong.
But US share prices drifted lower after a mixed start as investors adopted an increasingly cautious stance after a powerful recent surge.
With the market drifting in and out of positive territory, the Dow Jones industrials fell 0.3 percent to 8,172.88 points and the NASDAQ fell 1.1 percent to 1,384.55 points.
“We’ve had this huge run-up in the last couple of days. Technically, the market just wants to take a breath,” said Jay Susskind, director of trading at Ryan, Beck Co. in New York.
Support for the dollar strengthened as an attack on Iraq apparently loomed, with US troops taking up battle positions in northern Kuwait.
The euro was changing hands at 1.0587 dollars from 1.0631 late on Tuesday in New York, 127.11 yen (126.31), 0.6771 pounds (0.6790) and 1.4726 Swiss francs (1.4697).
The pound was at 1.5627 dollars (1.5648), 187.71 yen (185.96) and 2.1745 Swiss francs (2.1635).
The dollar rose to 120.09 yen from 118.84 on Tuesday.
“The dollar is back on the offensive as the deadline for Saddam Hussein to leave Iraq approaches,” said Commerzbank economist Kamal Sharma.
“The dollar is expected to continue its recent gains given the greater clarity on the probable timing for war and continued expectations for a relatively fast and successful US campaign,” said BNP Paribas’s global strategy team in a forecast.
Any early news from the war was expected to be positive for the US-led forces, meaning that “one or two days into military action, support from the dollar should start strengthening”, said Michael Klawitter of WestLB.
Oil prices rebounded slightly in London after plummeting a day earlier, as traders remained extremely nervous about the looming war even though most anticipate no major supply shortages.
The price of reference Brent North Sea crude oil for May delivery rose 18 cents in late deals to 27.43 dollars per barrel.
“This has been a market in the last two days that surprised a lot of people with the speed with which it came down,” said GNI trader Robert Laughlin.
“Many people are still gambling very much on a very short war, they think it could actually last days.”
But in New York, benchmark light sweet crude April futures fell another 67 cents to 31.00 dollars per barrel in early deals, partly owing to technical factors linked to the expiry of the contract at the end of the session. On the London Bullion Market, the price of an ounce of gold fell to 335.80 dollars from 338.0 dollars late on Tuesday.
“The market still remains very thin at the moment and liable to sharp moves as traders react to various news and statements,” said James Moore, analyst at the specialist website TheBullionDesk.com.
The price of bonds, also seen as safe haven in times of uncertainty, fell back.
The yield on the 10-year Treasury bond rose to 3.950 percent from 3.898 percent Tuesday and on the 30-year bond to 4.897 percent against 4.854 percent. Bond yields and prices move in opposite directions.