Investors have largely shrugged off several of these unexpected developments recently, including the sovereign debt crisis in Europe, but the situation in Egypt has the potential to cause more widespread uncertainty, especially if oil and other commodities keep surging or the unrest spreads to more countries in the Middle East. For investors, it is what is known as an exogenous event — a sudden political or economic jolt that cannot be predicted or modeled but sends shockwaves rippling through global markets. While Egypt’s banks and stock markets were closed on Monday because of the chaos there, the uncertainty weighed on Markets everywhere. [In Global Markets], most Asian markets fell, although trading was already low ahead of the Lunar New Year holiday this week, analysts said. On Monday, shares were mixed across Europe. The FTSE 100 in Britain was down 18.43 points or 0.31% while in Frankfurt, the DAX lost 25.32 points or 0.36%, while the CAC 40 in Paris was up 3.18 points, or 0.1%. [In US Markets], the Dow was up 44.58 points, or 0.23%, and the Standard & Poor’s 500-stock index rose 8.94 points, or 0.7%. The Nasdaq composite index gained 13.12 points, or about .5%.
Middle Eastern markets were mixed after sharp falls on Sunday in countries including Dubai, Abu Dhabi and Qatar. In Saudi Arabia, the main index was down 1% early Monday, while the Beirut market benchmark was down 1.4%,[and Egyptian markets remain closed]. Still Markets rebounded in Kuwait and Abu Dhabi. Moody’s Investors Service on Monday belatedly joined Fitch in downgrading Egypt’s outlook to negative, from stable. Moody’s lowered Egypt’s government bond rating further in noninvestment grade territory, to Ba2 from Ba1. Middle Eastern markets were mixed after sharp falls on Sunday in countries including Dubai, Abu Dhabi and Qatar. In Saudi Arabia, the main index was down 1% early Monday, while the Beirut market benchmark was down 1.4%,[and Egyptian markets remain closed]. Still Markets rebounded in Kuwait and Abu Dhabi. Moody’s Investors Service on Monday belatedly joined Fitch in downgrading Egypt’s outlook to negative, from stable. Moody’s lowered Egypt’s government bond rating further in noninvestment grade territory, to Ba2 from Ba1.
Until now, US stock markets had defied several outside threats, including the rising risk of food inflation, interest rate increases in China, and sovereign debt troubles in Europe, said Sam Stovall, chief investment strategist of Standard & Poor’s Equity Research. “But as is usually the case, a boxer never gets knocked out by a punch he’s looking for,” he said. “This could be what triggers the decline. Geopolitical events are very, very hard to model.” “A one-dollar, one-day increase in a barrel of oil takes $12 million out of the U.S. economy,” said Jason S. Grumet, president of the Bipartisan Policy Center, a Washington research group. “If tensions in the Mideast cause oil prices to rise by $5 for even just three months, over $5 billion dollars will leave the U.S. economy. Obviously, this is not a strategy for creating new jobs.”
New US economic data released by the Department of Commerce said consumer spending rose +0.7% in December, and nominal personal income rose +0.4%, in line with forecasts. While wages and salary income increased by just 0.3%. The prices of Treasury bonds slipped as yields rose to 3.34%.
Last week, the Dow Jones industrial average nearly surpassed the closely watched 12,000 level, but fell 166 points in late trading Friday as the protests in Egypt intensified and oil prices jumped +3.7% to $89.34/pb. With the US economy seeming to gain a foothold only recently — government data released Friday showed the economy grew by 3.2% in the fourth quarter of 2010 — however a sustained increase in oil prices could choke [gains and continued economic] growth, analysts said. It could also undermine the more general optimism that lifted the S&P500 index by 1.5% in January, after a 12.8% jump in 2010. In electronic trading on the Nymex Monday morning in Europe, the most active US crude future rose .73 cents to $90.08 a barrel. Read more here.
Sources: NYT, Bloomberg, Yahoo!Finance Photo: ibinews.com
