Attacks on Afghanistan affect stock markets

The world’s stock markets continue their twitching knee-jerk reactions to the events of the recent weeks, displaying a nervousness which seriously affects the stability of the more vulnerable sectors.

The stock markets saw a 15% slump in the two weeks after the attacks on September 11th, rallying back due to swift action taken by the central banks in the USA, the European Union and Japan, to cut interest rates and stabilise stock prices. For example, the London Stock Exchange Index, FTSE was at 4,400 on September 24th, reaching 5,036 points by October 5th.

Now the attacks on Afghanistan are making the markets jittery again. Despite government efforts to bail out the more vulnerable sectors, namely airlines, hotels and tourism and financial companies, there is immense pressure in this area, epitomised by the collapse of Swissair. Financials, usually linked to assurance or insurance companies, are at their most bearish point at payout time for this sector. More bullish stocks are likely to be oil companies and retailers.

The European Central Bank is under pressure to reduce interest rates again, for the third time since September 11th. The Belgian and French finance ministers are in favour of this, whereas the ECB President, Wim Duisenberg, is more reticent. He said, “At the current juncture the level of key ECB rates is seen to be consistent with maintaining price stability over the medium term”. However, he indicated that in the review meeting on October 11th, a renewed interest rate cut could be made “if we had new information available”.

Before September 11th, the ECB had cut rates by 0.25%, due to the impending recession. An emergency rate meeting after September 11th saw a cut of 0.5% and recently, there was another reduction by 0.75%. The current benchmark is 3.75%. Analysts point towards a probable 0.25% cut on October 11th.


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