Markets surge on bin Laden news
US dollar rose from three-year lows, world stocks made gains and oil prices fell following al-Qaeda leader’s killing.
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| Osama Bin Laden was killed in Pakistan on Sunday and his body recovered by US authorities [EPA] |
The US dollar rose from three-year lows, oil prices fell and world stocks put in gains after news the al-Qaeda leader Osama bin Laden was killed by US forces swept across the financial markets.
European shares also rose for an eighth straight session on Monday as the news prompted investors to believe that global risk threats might reduce.
Oil and gold fell on Monday, dipping by as much as two per cent following the news, and silver tumbled 10 per cent, its steepest fall since late 2008.
The death of the West’s most wanted man stripped some of the risk premium that has been underpinning asset prices. But investors warned that this kind of reaction is often only temporary.
“Markets across the globe received a bit of a boost … as news broke that US forces had killed Osama bin Laden. However, like many euphoric bounces, they are often short-lived, especially given the possibility for reprisal attacks from extremists,” said Ben Potter, market strategist at IG Index.
There were holidays in many countries – including China, Hong Kong, Singapore, Thailand and Britain, so trading was limited.
Buoyant dollar
Nonetheless, the dollar rebounded from a three-year low against a basket of currencies , where it had languished as a result of perceptions that the US Federal Reserve is in no hurry to tighten monetary policy.
The dollar was up a third of a per cent. European shares, minus Britain’s usual contribution, rose a third of a per cent, lifting MSCI’s all-country world stock index by 0.2 per cent.
US stock index futures added to gains, Japan’s Nikkei average rose 1.4 per cent on the day, while US Treasury prices fell.
US Treasury yields pushed higher across the curve with the 10-year rising to 3.308 per cent from a six-week
trough of 3.273 per cent.
“By lowering national security risks overall, this is likely to bolster equity markets and lower US Treasury prices in a reverse flight to quality movement,” said Mohamed El-Erian, Chief Executive Officer and Co-Chief Investment Officer at PIMCO, which oversees $1.2 trillion in assets.
“Oil markets are likely to be the most volatile given their higher sensitivity to the tug of war between lower risk overall and the possibility of isolated disturbances in some parts of the Middle East and central Asia,” he said.
U.S. crude fell close to 1.5 per cent to a session low of $112.21, retreating from a 31-month peak of $114.18 set on Friday.
On Monday, US President Barack Obama said al Qaeda’s elusive leader, whom authorities had sought in vain since his late-2001 disappearance in Afghanistan, was killed in Pakistan on Sunday and his body recovered.