Markets threatened by 'new world disorder'
"'Bush is giving people the opportunity to join him but he's not that bothered what their
response is. That's pretty worrying because it could leave the
world in serious disarray.'
Faisal Islam, economics correspondent
Sunday March 9, 2003
The Observer
Global stock markets will slump further into turmoil if there is a
war on Iraq without a clear United Nations mandate, the City is
warning.
Bond and stock traders fear action by the United States and
Britain without backing this week from the UN Security Council
could lead to economic and financial disruption around the
world.
'The political damage could be massive - globally, regionally,
between and within nations - new world disorder,' said Mark
Cliffe, chief economist at ING Financial markets. 'This would
imply greater postwar instability, heightened terrorist risks and
collateral damage to economic relations.'
Cliffe believed this 'would see US growth dive back to zero,
stock markets take another dive, the Fed cutting its funds rate
to 0.5 per cent and the dollar down to €1.20'.
Japanese markets are already at a 20-year low, European
markets are touching seven-year lows, and the FTSE 100 index
fell every day last week, ending up below the 3,500 level that
sees the prospect of forced selling under insurance company
solvency rules.
In recent weeks movements of the dollar on foreign exchanges
have become acutely sensitive to news that harms the American
case for war at the UN, such as Iraq's destruction of proscribed
missiles, and the dovish tone of reports from weapons
inspectors, according to research by Morgan Stanley.
David Buik of Cantor Index said: 'Bush is giving people the
opportunity to join him but he's not that bothered what their
response is. That's pretty worrying because it could leave the
world in serious disarray.'
Many economists pointed to the direct financial costs of the US
and Britain acting without the UN. 'What the market's taken so
badly is the feeling that the US is going it alone and the costs of
war are very high,' said Hilary Cook, director of investment
strategy at Barclays Private Clients. The bills would be easier to
accept if they were pooled.
A study by Lehman Brothers' chief economist John Llewellyn
says that regardless of who backs any action there is a one in
10 chance of an 'open-ended conflagration' which would lead to a
Viet nam war-sized bill for the US, 'equivalent to 12 per cent of
contemporary GDP', or $1.2 trillion.
Avinash Persaud, managing director of State Street Bank,
believes timing is vital: 'The market wants whatever happens to
be quickly resolved, and unilateral action is less likely to be
quickly resolved.
'A UN-sponsored resolution that led to the UN-sanctioned
rebuilding [of Iraq] is most conducive to swift action.'
Economists warn that even a quick, successful war for the US is
unlikely to lead to a surge in markets or immediate economic
upturn.
Persaud added:'Investors will be waiting on the sidelines for
peace, rather than buy on the sound of gunfire.'
· Just days before a possible war, US firms are buying two-
thirds of the Iraqi oil exported under the UN oil-for-food
programme, said the research firm Energy Intelligence.
guardian.co.uk |
