FINANCIAL POST, WEDNESDAY, SEPTEMBER 12, 2001
AXEL SEIDEMANN / THE ASSOCIATED PRESS
Lufthansa aircraft are parked at the Frankfurt international airport. The carrier turned back its U.S.-bound planes yesterday.
The immediate outlook for the U.S.dollar and other world currencies will depend as much on politicalposturing as on investor perceptionabout where is the safest place topark money, analysts said yesterday.“A lot depends on what the U.S.ofﬁcial reaction will be and whatthe U.S. Federal Reserve will do,”said Max Tessier, assistant vice-president, currency, for TAL Inter-national in Montreal.“It is also not unreasonable tothink that ofﬁcials from the (U.S.)Fed and the Federal Bank of Japanand the European Central Bank will be having a phone call to makesure we don’t see big swings in cur-rency markets in the next few daysas their contribution to creating asense of calm,” said Mr. Tessier.Before yesterday’s terrorist at-tacks, many currency analysts con-sidered the greenback to be over- valued as international investorssought a safe haven because of jit-ters about a slowdown in the worldeconomy. Yesterday, investors piled both inand out of the currency as uncer-tainty and panic selling rippedthrough world markets before they either ground to a virtual halt or were closed.On the one hand, there was ageneralized rush to sell the U.S.dollar. The dollar fell 2% againstthe euro, 1.8% against the yen, andhit seven-month lows against thepound and the Swiss franc as in- vestors shunned U.S. assets andopted for the traditional safehavens of Europe. Elsewhere, in- vestors dumped local currencies infavour of the greenback, which hasincreased steadily in value over thepast ﬁve years. While many analysts were waitingfor the dust to settle before makingprojections, some said they expectthe U.S. dollar will remain steady and perhaps increase in value.“The knee-jerk reaction to the blasts has been to sell the dollar,”said Ian Stannard at BNP Paribasin London. “I would expect furthergains in the near term. Key to howmuch the dollar suffers is whetherthis will affect foreign investor con-ﬁdence in U.S. assets.” Said DougDavis, president of David-Rea In- vestment Counsel Ltd. in Toronto:“The U.S. currency is still thestrongest in the world.“I guess I can see why they [in- vestors] might not like to hold itright now,” added Mr. Davis. “But when things get back under con-trol it will still be seen as thestrongest currency.” William McDonough, presidentof the Federal Reserve Bank of New York, which oversees U.S.monetary policy and plays a key role in ensuring stability in globalﬁnancial markets, said the U.S.central bank was standing by toprovide liquidity if there is a surgein demand.No one knew yesterday wherethings will head today. “We have no way of knowing where marketsstand,” said TAL’s Mr. Tessier. “Af-ter 11 a.m., liquidity dried up.”“This is something that’s neverhappened, and nobody knows what’s going to come next,” saidCristian Engels, a currency traderat BanEdwards Corredores de Bol-sa SA in Santiago.
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Investors rush todump U.S. dollar
World stock markets plunged yesterday after the attacks onthe U.S. ﬁnancial and politicalcapitals of New York and Wash-ington, with airlines and insur-ance companies leading the freefall.Most European exchanges saidthey planned to open for busi-ness today.The London Stock Exchange —Europe’s biggest — evacuated itstower headquarters as a precau-tionary measure but continuedto run trading until the close of business. It said it would openfor trading as normal today. TheFTSE 100 index closed down287.7 points in its biggest one-day fall since the crash of Octo- ber, 1987, wiping US$98-billionoff the value of shares. As well, the London Metal Ex-change three-month base met-als ended sharply higher, asdealers rushed to cover hugeshort positions in reaction to at-tacks on the World Trade Centerand Pentagon.The Paris bourse said the benchmark CAC-40 index end-ed down 7.39% or 433.2 pointsat 4059.75 points.German bourses sank to levelsnot seen for almost three years.The DAX was down 396.6points or 8.49%, with insurerMunich Re leading the tumble.Germany’s benchmark indextouched levels not seen sinceOctober 1998.In Milan, the Mib 30 indexclosed down 7.79% at 29,106points. The Swiss SMI indexshed 7.07% at 5695.1 points.The Madrid Ibex-35 index wasdown by 7.42%. However, Span-ish ﬁnancial markets said they would open for trading today asnormal.The Dow Jones Industrial andthe Nasdaq didn’t opened yes-terday, while the Toronto StockExchange was open for a littleover an hour.German airline Lufthansa, which said it had turned back itsU.S.-bound planes on news of the attack, plunged 22%, whiletourism group Preussag, fell14% as investors mulled the im-pact on the tourism industry.British Airways slumped 21% toclose at its weakest level in 10 years at 208 pence, hurt by theprospect of higher oil prices and worries about international se-curity. Singapore Airlines Ltd.and Cathay Paciﬁc Airways Ltd., Asia’s third- and sixth-biggestcarriers by sales, diverted orcancelled all U.S.-bound ser- vices. On the Hang Seng, Cathay Paciﬁc was down 0.20 at 8.35. Air France also traded 16.2% lower.Latin American stock ex-changes suspended trading andcurrencies tumbled after thetragedies. Stock exchanges inBrazil, Mexico, Argentina, Venezuela and Chile suspendedtrading as shares plummetedfollowing the attacks. TheBrazilian real fell to a record low, weakening as much as2.9% against the U.S. dollar.The Chilean, Mexican andColombian pesos also slid.“The market is reacting with-out a doubt to the airplanescrash,” said Sergio Machado, di-rector of ﬁxed-income trading atBanco Fator SA in Sao Paulo.Brazil’s benchmark Bovespaindex fell as much as 9.2% be-fore the suspension of tradingafter 75 minutes. Argentina’sBuenos Aires Stock Exchangesuspended trading, after the benchmark index fell 5.2%.The Chilean stock exchangesuspended trading after the benchmark index fell 5.2%, while Venezuela’s CaracasStock Exchange suspendedtrading after its index fell 2%.Insurers were some of the biggest casualties on the Ger-man markets, with re-insurerMunich Re tumbling 14% and Allianz falling 9.6%, as in- vestors mulled the prospectthat the disaster would result inclaims worth billions of dollars.Insurer Swiss Re, the world’ssecond-largest reinsurer, saidits exposure was impossible toquantify. Swiss Re shares weredown 17.3%. Swiss insurerBaloise was down 8.8%.
Financial Post, with ﬁles from Reuters and Bloomberg Newsdsteinhart@nationalpost.com
FTSE 100 posts biggest one-day fallsince 1987 crash
Airlines, insurers lead plungeas global markets in free fall
After terroristattacks it remained unclear whether the World Bank and In-ternational Monetary Fund would postpone or cancel theirannual meetings due to takeplace here at the end of thismonth.“Today, we are only thinkingabout the tragedy and what wecan do to help,” Caroline Anstey,head of media relations at the World Bank, said yesterday.“But in a day or two we willhave to turn our attention to what can be done about the an-nual meetings and what the im-plications are.”The annual meetings bring to-gether top ﬁnance ministers andcentral bank governors fromaround the world to discuss theglobal economic situation.The meetings, scheduled forSept. 29-30, had already beenshortened to two days becauseof the threat of violent protests. Washington police expect asmany as 100,000 demonstra-tors.“We haven’t had the ability totalk about it yet,” said Adam Ei-dinger of the Mobilization forGlobal Justice, a coalition of groups that is organizing mas-sive demonstrations during themeetings. “People should takesome time to mourn and the de-cision will be made after carefulconsideration.”
World Bank,IMF meetingsin jeopardy
Panic from the attacks on the Unit-ed States sent gold prices soaringon a day that was otherwise expect-ed to be spent in quiet anticipationof today’s scheduled gold sale at theBank of England.The gold ﬁx in London rose 5.7%or US$15.60 an ounce after the af-ternoon benchmark price was ﬁ-nally set at US$287. The price forimmediate delivery rose 5.4% toUS$286.25 in London — the biggest one day gain since Sept. 28,1999.Gold stocks, meanwhile, rose inearly trading on the Toronto StockExchange.The Toronto Stock Exchange’sgold and precious metal prices in-dex was up 343.31 points or 7% to5250.72, before the market wasclosed in response the tragedy inNew York. The close was the high-est since May 22.Martin Potts, an analyst with Williams de Broe in London, saidthe market instinctively turns togold in times of terrible news. “Thefeeling is that this could get nastier.”Gold was not expected to be ontoo many radar screens yesterday.The Bank of England is today scheduled to sell off 20 tonnes of gold, and most traders would have been content to let the market ab-sorb the new supply before tryingto play the price.But the destruction of the two World Trade Center towers and theresulting evacuation of Manhattenrekindled interest in gold, whichhas historically been a safe place topark funds during internationalemergencies.“In a time of crisis, in a time of po-tential war, in a time of uncertainty,gold has been a safe haven and acommodity to have,” said John Ing,president of Maison PlacementsCanada. For example, familiesfrom Thailand and Indonesia wereable to preserve their fortunes by converting their holdings to goldand gold stocks prior to the col- lapse of their local currencies dur-ing the Asian meltdown of 1997.But generally speaking, it has been some time since gold playedits traditional role as a hedgeagainst inﬂation and panic. Goldprices, which peaked at aboutUS$850 in the early 1980s, have been in decline for 20 years.The seemingly endless bull mar-ket of the 1990s, combined withthe evaporation of inﬂation, left in- vestors from Europe and North America ignoring gold for other in- vestments. The U.S. dollar, for ex-ample, seemed to be just as invinci- ble as gold ever was. As a result,some of the recent geopolitical cri-sises, such as the 1991 Gulf War, re-sulted in a blip in prices. Yesterday’s brief ﬂurry of trading led to one of the biggest jumps inmonths on the TSEgold and pre-cious minerals index.Barrick Gold Corp. of Toronto,for instance, the world’s largestgold company in terms of market value, rose 9.9% to end trading at$27.70. Placer Dome Inc. of Van-couver was up 7.1% to end tradingat $18.60.“Gold’s safe haven status remains,”said Greg Barns, chief executive of the Australian Gold Council, a pro-ducer-sponsored group. “Obvious- ly that’s not something the market would gloat about, given thetragedy that’s occurring. But gold’ssafe haven role is what we’re seeingat the moment.”Gold has been valued from timeimmemorial. Portable, liquid andinstrinsically valuable, it was seenas the perfect way to maintain wealth.Gold prices were stable through-out the ﬁrst half the nineteenthcentury. They took their ﬁrst spikeduring the U.S. Civil War of theearly 1860s as investors sought toprotect their holdings.Prices stablized by the close of thecentury and remained relatively stable until the Great Depressionof the 1930s and World War Twofrom 1939-1945.“It was always used by a greatmany families not only as a meansof liquifying and maintaining the wealth, but it was also a way to getacross borders,” Mr. Ing said.In recent times, gold shot up- wards with oil crisis imposed by the Organization of Petroleum Ex-porting Countries in the early 1970s and the runaway inﬂation atthe end of that decade. Yet goldprices have been trending down- ward since inﬂation seemed tohave been brought under controlin the 1990s. “It’s a knee-jerk reac-tion,” said Tony Warwick-Ching, aconsultant with CRU Internationalin London.
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RISES 5.7% IN LONDON
Gold soars as worried investors head for a haven
BRASILIA, BRAZIL •
BrazilianPresident Fernando HenriqueCardoso warned there could beeconomic difﬁculties for Latin America’s largest country after yesteray’s series of aerial attackson the United States.“It is probable that considering the virulent nature of these acts there will be consequences in the whole world, mainly economic,” Cardoso,president of the world’s ﬁfth mostpopulous country, said.“And Brazil which is part of the world economy could be directly orindirectly affected by this turbu- lence and by the difﬁculties thatcould occur in the economic area,”he added.Brazil is among the world’s top 15economies and its economic perfor-mance has already deterioratedsharply this year due to worries overdebt-ridden neighboring Argentina,an acute energy shortage at homeand a plunging currency value.In the worst terror attack on theU.S. mainland in modern history,two hijacked planes slammed intothe twin towers of the World TradeCenter in New York — where about40,000 people work — and a thirdplane hit the Pentagon, across thePotomac river from Washington.The death toll, initially difﬁcult tocalculate, was expected to be in thethousands.Shocked by the attacks, Brazilianinvestors sold stocks, plungingtheir value 9.2 percent Tuesday be-fore the Sao Paulo stock exchangesuspended trading for the day. Thereal currency plummeted to record low levels against the dollar, bring-ing its declines in the year to 27percent.But Cardoso added, “For nowthere is no reason for great worry.”Stock exchanges in the world’s ﬁ-nancial center were shut down and would remain so Wednesday afterthe attacks, while markets the worldover plunged on concern that thefallout from attacks could furtherslow global economic output. Amid the uncertainty for the econ-omy, assets traditionally considered“safe haven” investments like oil andgold soared on the news. But inBrazil, economists worried in- vestors would become wary of hold-ing assets in emerging markets inLatin American nations, which gen-erally have a volatile history.Cardoso was speaking shortly be-fore a meeting of the National De-fense Council, Brazil’s highest de-fense authority.Cardoso, who earlier sent a state-ment to President Bush condemn-ing the attacks, said: “I want to reit-erate our expression of horror andcondemnation by the governmentand (Brazil’s) people.”The council’s members includeCardoso, the defense, justice andforeign ministers, and the top chief in Congress.“The terrorist acts that hit theUnited States demonstrate that thethreats to the free world are very realand that the biggest ones are thoseof suicide terrorist attacks,” DefenseMinister Geraldo Quintao said.
BRAZILFEARSITWILLSUFFERFROM ECONOMICSHOCK WAVES
‘THE MARKET ISREACTING WITHOUT A DOUBT TO THE AIRPLANES’ CRASH’
LATIN AMERICA CURRENCIES