Sigh of relief as Iraqi war uncertainty dissipates

THE success of the Anglo-US war on Iraq should push war concerns to the background and open the way for regular economic and results information to drive sentiment on world stock markets, economist Jim Power predicted yesterday.

“From the perspective of the markets, there has been an audible sigh of relief that the major uncertainty has been removed and for the moment, geo-political uncertainty should take a back seat in terms of driving market sentiment. This is not to suggest that geo-political uncertainty has gone away as a longer-term issue for financial markets, but for the moment it should move back into the background.

“The issues surrounding Syria, Iran, North Korea, and the ongoing threat of further terrorist attacks in the West are still very real, but are not paramount in the minds of investors now that the Iraqi war is reaching its conclusion,” said Friends First chief economist Jim Power.

Mr Power said the markets were now starting to focus again on the real economic and corporate issues.

“On the economic front the news is still very mixed, but for the first time in a while we received some positive surprises last week,” he said. Mr Power pointed to the strong increase in retail sales in the US; the increase in the University of Michigan’s consumer confidence reading from 77.6 to 83.2, well ahead of expectations; German industrial orders fell by 0.6%, marginally better than expected.

“There is now some hope that US confidence measures will bounce back strongly in the aftermath of the war. Of course it is still far from certain that the expected rebound in business and consumer confidence will be sustained and result in improved levels of real activity.

“The economy is still working through the legacy of the bubble economy, which is manifested in over-investment, corporate balance sheet restructuring, and high levels of consumer debt. These issues will have to be sorted before the US economy can get back onto a stronger and sustained economic growth path,” he added.

Mr Power said that all in all, the economic picture in the euro area remains a very weak and uncertain one.

“At the weekend the ECB President, Win Duisenberg, argued that lower interest rates from the ECB would not be sufficient to restore growth to the euro zone economy. He believes that more broadly based measures are needed to restore confidence.”