Back to Reality
The news this morning shattered what was to have been another typical day with grim familiarity, first echoing Madrid, then dredging up still near-to-the-surface lower Manhattan scars from a September day as images of the injured floated through space, beamed by satellite to televisions in far away places. Bombs on buses and subways, explosions disrupting a morning commute. I had a different piece all set to go this morning, but it just doesn't feel right. Not now.
London was struck by at least six separate and coordinated explosions on its subways and buses during the morning rush hour, killing at least two people and injuring many more, according to early reports. Prime Minister Tony Blair, hosting the G8 summit in Gleneagles, Scotland, will return to London immediately, but for now plans to return to the G8 meeting later this evening.
European and Asian markets are lower by 2-3% across the board. In the U.S. futures are down significantly, S&P 500 futures are lower by 18, Nasdaq 100 futures lower by 29. Crude oil is lower by nearly $2, trading back below $60 a barrel as well. And gold is back up near $430 an ounce; even as the LME, according to Reuters, will unlikely open their metals floor for trading in London. Expect transportation and airlines to also show some volatility as the rumor gets sifted from the news out of London.
What traders and investors will determine throughout the day today is how this morning's bombings affect their risk profile, alter their motivations, perhaps introducing a new uncertainty premium for which they now must account. Risk in the system remains elevated per John's earlier comments on the buzz.
Our context heading into today was positive longer-term, but near-term sketchy, with short-term indicators conveying higher short-term risk to factor into the equation. Still, it is worth noting that the charts in London and Europe do not show technical breakdowns, despite the sharp moves downward in the aftermath of the bombings.
Since the economic and stock market recovery began in 2003, Europe has been among the weakest links in the global reflation effort. Although they passed on a change to rates this morning (keeping them at 2%), important questions remain about the health of the economy. Perhaps the digestion of such an event boosts the likelihood of forthcoming rate cuts by both the European Central Bank and Bank of England in light of the weaker macro enviornment.
Additionally, speculation had already been growing that, following the French and Dutch rejections of the European union constitution, the very future of the EU, and of the single European currency, is in doubt.
If you find yourself off balance this morning, take a step back and consider the aftermath of our previous recent experiences with attacks such as these. This is the world we live in; the one we may have thought, even if for a brief few moments, that we had already left behind, buried near a mountain in Afghanistan, or tossed into the Tigris River in Iraq. This is us. What will we do with it? What will we make of it? Like you, I don't have the answers to those questions. But I do know that pressing and swinging, not just in finance, but in all aspects of life, is rarely the right answer.
Our thoughts and prayers go out to family and friends in London.
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