Europe's stock markets: So Far So Good
LONDON (AP) — Share prices fell Monday on the London Stock Exchange. The Financial Times-Stock Exchange 100-Share Index fell 3.3 points, or 0.07 percent, to 5,032.7. Provisional market volume was 1.5 billion shares compared with 2.2 billion shares on Friday. Noon:Share prices on the London Stock Exchange were lower at midday Monday. The Financial Times-Stock Exchange 100-share index was down 56.0 points at 4,980.0. OCTOBER 08, 12:55 EDT6 AM LONDON (Reuters) - Europe's stock markets looked set for a cautious but orderly start on Monday after Sunday's U.S. retaliatory strikes against Afghanistan, with investors well-prepared for action following the September 11 attacks.
"The market has seen this coming. Historically this is seen as a positive, the beginning of the end," said Merrill Lynch Investment Managers' global economist Richard Turnill.
"The only point of reference is the Gulf War when the start of Desert Storm (the U.S. offensive against Iraq in 1991) marked a low point for consumer confidence and for markets. The unknown is the backlash -- whether this provokes significant terrorist attacks -- and to that extent markets are vulnerable."
Even if the market's immediate reaction was a knee-jerk negative in the early hours of Monday trading, this would be short-lived, investors said.
"The risk premium goes up in times of uncertainty and people move into safer assets, but historically that is short-lived and provides a buying opportunity," said Turnill.
And market behavior over the next few days and weeks would likely be far more closely related to corporate news than to military developments.
"The market is much more likely to move if we see another large corporate bankruptcy than it is to move on this," said Standard Life's head of European equities Stuart Fraser who helps manage assets of $100 billion.
The markets' mood will not be helped by news on Sunday that Britain Railtrack Plc, the insolvent owner and operator of the country's rail network, into administration after the government turned down its latest request for state aid.
Sentiment will be hurt also by weekend news that Switzerland's major airline operator Swissair continues to scratch for funds to keep its airlines and flight-related operations running.
On Sunday evening there was still no word on a 250 million Swiss franc bridge loan which Switzerland's biggest banks, UBS AG and Credit Suisse had pledged as part of a 1.36 billion-franc rescue package unveiled last Monday.
Benchmark pan-European equity indices have clambered back to levels seen on the eve of last month's attacks, despite grim company news, and although players remain uneasy about corporate profitability given the U.S. economy's already weak health before the events in New York and near Washington.
Central banks remain on red alert over the state of the world economy, even after concerted interest rate cuts since the attacks, which have helped pump confidence back into markets.
Investors are now waiting for this week's European Central Bank meeting for news of any change to monetary policy, as well as U.S. retail sales figures which should shed more light on the continuing fallout from the attacks.
"The effect (of the attacks) is seen as deferring the bottom in corporate profits by a quarter, and so we are discounting another bad quarter at least. We are expecting the bottom in profits early next year and the bottom for markets may come before that," said MLIM's Turnill.
OIL, RELIEF?
The key to the market's well-being as the U.S. military action develops will be how well the pro-U.S. alliance holds out, and in particular whether oil-producing Arab states continued to back the U.S.
A bombing that killed two people including an American in Saudi Arabia fueled fears that Washington's war on terrorism could spark reprisals against foreigners, and highlighted tensions in the region.
"The big difference to the Gulf War is that Desert Storm marked a peak in the oil price at $45 a barrel. We are nowhere near that and oil would have to be $30 a barrel to be a worry," said MLIM's Turnill.
"Afghanistan is not major oil producer. The concern is that this will turn into an Arab war. And that looks unlikely right now." Benchmark European Brent oil futures closed below $22 a barrel on Friday.
But Standard Life's Fraser said the market may even take a bullish tack on the back of Sunday's news.
"The oil market has priced in all this. You may see a general, across-the-board relief bounce that they finally got on with it.
"The markets have moved on and are looking at the economics of it all, they are looking at corporate angles and government spending. The effect won't be as great as after the attacks on Iraq in 1991. Yes, equities look cheap against bonds, but we have to see the worst of the economic numbers, see the recovery, before markets start going higher," he said.