Markets Jittery on Anniversary of September 11

Stock markets in Europe opened slowly on Wednesday and remained cautious throughout the early hours of trading. Investment was hesitant as traders tended to adopt a "let’s wait and see" attitude rather than get caught up in impulse buying and selling.

According to investment analysts, few traders were willing to make risky investments, for fear of being caught off guard in the event of a new terrorist act. Many remembered all too well how the market shook and plunged only a year ago after terrorists crashed planes into the World Trade Center and Pentagon.

"Very few professional investors have wanted to hold short positions on the basis that if something were to happen today it would be extremely difficult to cover those short positions," a trader for NatWest Stockbrokers told AFP wire services Wednesday morning in London.

Reflecting this sense of uncertainty, markets in Europe began the day with reserved trading. Across the 12-nation euro zone, the Euro Stoxx 50 index was down 0.1 percent. The Britsh FTSE 100 index dropped 0.6 percent, and the German DAX reported a 0.21 percent slip in trading. Only the French CAC was able to inch up to a meager 0.2 percent.

The German financial daily Handelsblatt described the atmosphere on the international markets as tense and a little nervous. Peter Coolidge from Brean Murray & Co. in New York told the paper that "people don’t want to commit themselves to anything before September 11 is over."

Another trader at the Deutsche Bank summarized the mood saying, "no one can prophesize what will really happen, but if something does happen, the markets will crash – that’s clear."

Remembering last year

September 11, 2001 was a Tuesday. In the US, trading stopped for the next four days. In Frankfurt, however, the traders continued conducting their business.

"We wanted to avoid a complete crash of the financial markets," said Frank Hartmann, spokesman for The Deutsche Börse AG (German stock exchange). Except for a two-hour stop on trade with US stocks, business moved on as usual.

But it was anything but a normal business day. The German DAX tumbled 7 to 8 percent by closing time, and wasn’t able to recover until nearly two months later. In London, Paris and Rome, in Hong Kong and Tokyo, stocks plummeted, and the day ended with some of the biggest single day losses in recent history.

Only months later could the global economy recover most of its lost ground. Some industries, however, were so badly hurt, that they are still struggling: aviation, tourism, insurance and re-insurers.

Even a year later, Germany’s travel giant TUI is recording 3.8 percent losses. And several international airlines can only stay in flight with the help of hefty government assistance programs.

Lay-offs following the terrorist attacks were especially common in the aviation sector. American Airlines, which lost two jets in the attacks, cut 20,000 positions, a reduction of roughly 20 percent of its entire workforce, while commercial aircraft manufacturer Boeing slashed 30,000 jobs shortly after the attacks.

Financial losses in the insurance sector were also significant following September 11. Lloyd’s of London, the world’s largest insurer, faced claims totaling close to 307 million euro ($300 million). And the German-based Munich Re, the world’s largest re-insurer, estimated costs at around 1 billion euro ($970 million).

Beyond September 11

For the rest of the market, however, the negative aftermath of September 11 have been eclipsed by more deep-rooted problems. Economic analysts say many of these, such as a sluggish global economy, rising unemployment and a steady decline in the technology sector, all predate the terrorist attacks, and will continue to cause problems for the markets beyond the one-year anniversary.

"Certainly September 11 unsettled investors," said Stefan Schneider, Chief International Economist at Deutsche Bank Research, "but the current low market figures, are not all related to the terrorist attacks." By the end of 2001, the markets had almost fully recovered, he told NDR German television, explaining that other factors were to blame.

The recent downward trend owes much more to accounting scandals in the US, a general pessimism about global economic growth and the situation in the Middle East, including a looming war in Iraq, said Rolf Drees, German financial analyst.

As proof of the ongoing troubles, eleven months after the terrorist attacks the DAX dropped to 3.235 points, its lowest level since April 1997.

Economic growth is most critical factor

In the coming months, the most critical factor driving the markets is confidence in economic development and growth. According to the German Investment Trust, long-term market trends for the coming year are dependent on positive growth. If company returns continue to be low, it explains, the stock markets will not recover.

But this does not appear to be the case. Speaking on Tuesday in Tokyo, the head of the International Monetary Fund, Horst Köhler, announced that while global economic prospects had weakened in the last year, recovery lies ahead in the upcoming months. Recession is not a real risk, he said.

"Although growth prospects have weakened somewhat in the United States and Europe, most recently our assessment is that the recovery will continue," Köhler explained, easing investment worries.

In Germany, the Institute for Economic Research in Halle predicted a growth rate of 0.6 percent next year for the sluggish German economy.

The prognosis is a "peace-time scenario"it warned, and in the event of a war against Iraq, the economic recovery will suffer and growth will be considerably less. But this will be the case around the world. Risks and uncertainty could hinder the global recovery process, Köhler cautioned.