Economies Resilient After Attacks
Friday, July 8, 2005
NEW YORK, July 7 -- World financial markets plunged on Thursday after terrorist bombs ripped through central London but steadily recovered as the day progressed and no other similar attacks occurred.
European markets bore the brunt of the damage, with London's FTSE 100 Index dropping as much as 4 percent immediately after the attacks before rebounding to finish the day down 1.4 percent. Markets in Paris and Frankfurt also dropped sharply before finishing down 1.4 percent and 1.9 percent respectively.
After sinking at the opening bell, stocks in the United States finished slightly higher, with the Dow Jones industrial average closing at 10,302.29, up 31.61, or 0.3 percent. An initial move by investors after the attacks to the perceived safety of gold, bonds and currencies such as the Swiss franc eased as the day wore on.
Traders, money managers and economists said the relatively muted global market reaction reflects a growing acceptance that events such as the London bombings and last year's train attack in Madrid that killed 191 are now a grimly predictable feature of the geopolitical landscape.
And in the cold calculus of the marketplace, the fact that the initial death toll was not higher and the attacks did not immediately spread to other world capitals limited the impact of the London bombings, experts said. Several market observers also said the claims of responsibility by Islamic extremist groups and the familiar contours of the attacks tempered what might have been a stronger reaction to a previously unknown threat.
"To put a price on the number of lives lost gets into an area that no one really wants to get into," said Robert J. Barbera, chief economist at ITG/Hoenig. "But one explanation for the reaction is that the outright result of these attacks has been diminishing each time, from 9/11, to Madrid, to London. In each case, the attacks have been less spectacular, less devastating."
Barbera added, "The brass tacks of market reaction is, 'Does this event change your opinion of al Qaeda, their approach or their agenda? I would submit the answer in all cases is no. We know they are out there. We know they are out to get us. And we know we are doing our best to stop them.' "
That acceptance was demonstrated by the short-lived rush into areas that investors often view as safe havens. After falling as low as 3.932 percent after the attacks, the yield on the 10-year Treasury note, which moves in the opposite direction of price, finished at 4.06 percent. After spiking as much as $5.60 earlier in the day, gold finished largely unchanged in New York trading, at $423.30 an ounce.
The euro rose just slightly over the dollar, rising to $1.1945 from $1.1922 on Wednesday. The British pound dropped as low as $1.7403 before recovering to $1.7425 in New York trading.
Oil prices plunged after the attacks, sinking as low as $57.20 a barrel on concern that events in London would depress global economic activity. But prices rebounded during the day, with a barrel of light, sweet crude finishing at $60.73 in New York, down 55 cents. Many traders cited the dip in oil prices as one driving force behind the slight rise in U.S. stock prices for the day.
The other major factor was that U.S. investors had six hours before the opening bell to consider the potential impact of the London attacks.
Both the Dow and the Standard & Poor's 500-stock index hit their low points for the day just seven minutes after the market opened and slowly moved higher throughout the day. The S&P 500 finished at 1197.87, up 2.93 points, or 0.25 percent. The technology-laden Nasdaq Stock Market index finished up 7.01 points, or 0.3 percent, at 2075.66.