Gauging the bin Laden effect

Markets react to the death of the No. 1 enemy in the War on Terror.

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(WILLIAM WEST/AFP/Getty Images)

For more than a decade, the threat of terrorism has contributed to rising oil prices, global instability and insecurity in major financial centres—in other words, it’s been a major drag on business. But how much has the looming presence of Osama bin Laden, who until last weekend managed to evade U.S. forces, fueled that threat? And to what extent has his death quelled concerns? We’re about to find out.

If early market reaction is any indication, the answer appears to lie between “a little” and “somewhat.” As TheStreet reported on Monday, stocks rose slightly in the wake of the news, with modest gains in the Dow Jones Industrial Average (0.3%), the S&P 500 (0.3%) and the Nasdaq (0.2%). In Europe and Asia, markets were also up, with Japan’s Nikkel climbing by 1.6%, and markets in Germany up by 0.5%.  

Though crude oil fell initially, prices were up by the time markets opened on Monday, suggesting that bin Laden—dead or alive—may not be a key factor in determining oil prices. On the New York Mercantile Exchange, oil futures for June delivery were up 37 cents to $114.30 a barrel, while in London, Brent crude gained 22 cents to $126.11. The case was similar for gold and silver prices, which have experienced a significant surge in uncertain times. As the news of bin Laden’s death buoyed the U.S. dollar, precious metals took a sudden hit, but have since recovered, though prices still remain short of recent highs.

All of which has many financial observers warning that, more than 10 years after 9/11 and in the aftermath of a worldwide recession, the Bin Laden Effect will likely be brief. “Markets across the globe received a bit of a boost as news broke that U.S. forces had killed Osama bin Laden,” Ben Potter, a market strategist at IG Index told The Guardian. “However, like many euphoric bounces, they are often short-lived, especially given the possibility for reprisal attacks from extremists.”

 

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