WASHINGTON, Dec. 15 (UPI) -- The capture of Saddam Hussein over the weekend seemed at first blush to be greeted with euphoria not only in Iraq and the United States, but also by investors across the globe. But with market fundamentals remaining unchanged, the impact of Saddam's arrest has only had a limited impact, and actually pushed U.S. share prices lower, even though prices for gold and petroleum appears to be dropping steadily as a result.
Financial markets in Asia opened hours after the Bush administration formally announced that the Iraqi dictator had been caught at the bottom of an eight-foot hole, and share prices quickly rose and continued to gain strength throughout the trading day.
"The only news that will matter for the next 24 hours is the capture of a cowardly Saddam Hussein by U.S. troops without a shot being fired," said Brian Wesbury, chief economist at financial advisers GKST Economics.
That may well be, but after 24 hours, the news appears to have gone stale quickly. Certainly, Asian investors bought shares aggressively across the board on the news as confidence in the U.S. economy increased, ahead of Wall Street opening for the week. The inability of the administration to find Saddam for the past eight months as terrorist attacks on U.S. and other foreign groups based in Iraq intensified had been weighing down on traders' sentiments worldwide, particularly as the United States remains the driving force for global growth.
So news of locating and detaining Saddam at long last was a welcome one, and particularly in Japan and South Korea, given that both countries have sent troops to the country in recent weeks to assist U.S. military efforts.
As a result, Tokyo's benchmark Nikkei-225 index soared 3.2 percent, or 321 points, to close at 10,490.77, while Seoul's Kospi index jumped up 2 percent to close at 822. Elsewhere in Asia, reaction was positive as the Singapore Straits Times index rose 1 percent to 1,744, while Hong Kong's Hang Seng Index gained 0.1 percent to 12,605, while Sydney's All Ordinaries index rose 1.1 percent to 3,252.
Still, the reaction by European bourses, which opened after Asian trading, was more muted, as the buying frenzy earlier in the day gradually tapered off. At the end of the day, the FTSE-100 only inched up 0.01 percent to close at 4,380.00, while the German DAX index gained 0.40 percent to 3,875.47, and the French CAC-40 nudged up 0.57 percent to close at 3,490.42.
As for U.S. markets, investor appetite for stocks quickly fizzled as investors became concerned that conditions in Iraq still remain murky at best in the longer-term, even with Saddam's arrest. As such, even though the Dow Jones industrial average had started the day on a high note, hitting 10,139.00 soon after the opening bell, it ended down 19.34 points to close at 10,022.82. Nasdaq too fell 30.74 points to end at 1,918.26.
Once the initial jubilation over his capture was over, currency traders too began to analyze the longer-term implication of what detaining the former Iraqi dictator may or may not mean for the country's growth in the longer-term. So while the value of the U.S. dollar increased initially as well, buoyed by the fact that Saddam's capture could potentially spell the beginning of the end to violence in Iraq. The greenback had rose as much as 108.40 yen in trading in Asia, but has fallen again close to 107.50 yen in early afternoon trade in the United States. As for the euro, it fell to $1.2119 in the early hours of Monday trading in Asia, but has subsequently nudged back up to $1.2290.
One of the key factors for the dollar's weakening in so short a space of time is the realization that currency markets should reflect market fundamentals. As such, even though Saddam's capture could prove to be a watershed in the history of the Middle East as well as the Bush administration, it nonetheless does not change the fact that the United States continues to suffer massive fiscal and trade deficits.
As such, analysts said a bigger factor to bolster the greenback's value in the longer-term would be either to reduce such deficits, or for the Federal Reserve to tighten monetary policy. Higher interest rates would increase the spread between U.S. and foreign investments, which in turn could lure more overseas investments into the United States and drive up demand for dollars.
But as many investors speculate that the situation in Iraq is less unstable than before, prices for both gold and petroleum have been steadily decreasing. Spot gold is down about $1.80 to $406.80 an ounce, but it had actually fallen as low as $401.80 in Asian trade.
Oil prices, meanwhile, continues to fall steadily as many analysts expect Saddam's capture to lead to an end of the attacks on Iraq's oil infrastructure. U.S. light crude is about $32.80, down 24 cents, having been almost as high as $35 per barrel last week.
