Although the financial markets looked like they were soon going to be back on track, despite the terror attacks in Madrid last week, the results of the elections in Spain and the increasingly obvious clues pointing to the involvement of terrorist group Al-Qaeda have induced a new shock wave, which primarily hit the European bourses and the US dollar. To everybody’s surprise, the socialists won the elections on Sunday, with the Spanish punishing the decision of the former Government to back the United States in the war in Iraq.
A videotape found near a Madrid mosque showed a purported al-Qaeda operative (the group’s military spokesman for Europe) claiming that the terror group bombed trains in Madrid to punish Spain’s backing of the U.S.-led war against Iraq.The tape stirred panic among financial and political milieus throughout the entire world. The “terrorism premium,” as analysts describe it, will start playing an important part in the price equation and in the development of the markets.
On the other hand, the sovereign bonds, the euro and the Swiss franc, the precious metal market and the oil market have followed an upward trend, as investors preferred to go for safer investments in a time marred by geopolitical risks.
The terrorist threat has most visibly impacted on the European markets, which saw one of the weakest trends in months during the Monday session: FTSE Eurotop, Dow Jones Stoxx, FTSE, CAC 40 and DAX fell.
The Madrid Bourse was dealt the heaviest blow of all, as its Ibex lost 2.8%, posting the weakest performance in 10 months. David Brown, analyst with the London subsidiary of Bear Stearns investment bank feels the impact of the attacks will be felt on the financial markets for a number of weeks to come.
“Cautious investors are likely to remain on the defensive this week,” Gary Parkinson, Financial Spreads analyst in his turn comments.
Surprisingly, the American markets opened optimistically on Monday, as positive February output data outweighed the terrorist threats.
The dollar, which is weak when faced with geopolitical threats, shed half a percentage point to the euro, while the Swiss franc, regarded as a “haven currency”, gained 1% against the American currency.
“There are a series of things that do not allow the dollar to strengthen: the trade deficit deepens, the jobs situation remains gloomy, and it looks like Al-Qaeda influences the political process,” Tim Fox, chief market strategist of National Australia Bank says.
The decision of the new Spanish Prime Minister Jose Luis Rodriguez Zapatero to recall the 1,300 Spanish troops in Iraq has played an important part in the rise of the euro. Zapatero hinted that the Spanish troops would be recalled from Iraq in case “the situation does not change,” meaning the immediate transfer of sovereignty to a domestic government.
The decline of the bourses was also accompanied by the rise in the sovereign bond prices and by the increase in the gold price by nearly four dollars to $398.8/ounce.
gabriel.taranu@zf.ro