Bin Laden eliminated, equities surge

Equity markets surged and the dollar advanced slightly on the news of a death of Osama Bin Laden. The news came today during the Asian session – the US president informed that the US units killed Bin Laden in Pakistan.

While the news is good, the question is if the market reaction was justified? Some commentators indicated that this death can bring the “war on terrorism” to an end. Should that occur, the US administration could hopefully slash some spending of defense. However, this seems to be a wishful thinking. Actually, a death of Bin Laden can increase a threat of terroristic attacks in the short term and there will be no immediate impact on the US public finances. To us, the reaction seems to be mostly emotional and if it is maintained it’s only because the sentiment remains bullish (thanks to the Fed).

Technically, contracts on the S&P500 are moving towards a resistance at 1380,5 pts. after dealing with a previous resistance at 1343 pts. which now serves as a support.

Silver market collapses – is that the end of the trend?

We pointed at silver prices a week ago () as we think there is a good probability of a trend just being reversed on this market. Today silver prices tumbled from 48 USD to 42,50 USD per ounce in a response to CME’s decision to increase margin levels for contracts on this metal. Even though prices recovered somewhat (to 44,50 USD at the European opening) this kind of a reaction shows how vulnerable bulls actually are. A technical analysis of the silver market adds to their worries: three consecutive lower highs indicate a lack of power even without today’s tumble. A trend line running currently around 41USD is the key support now – should prices move below it, we might well witness a reversal on the market of silver.    

Events to watch – ISM in US, RBA

With Bin Laden’s death dominating the news today, scheduled calendar releases might be somewhat overshadowed. Nevertheless, it still makes sense to watch the US ISM (10.00 ET, 16.00 CET, consensus 60 pts.) given its long-term relationship with equity markets and a respective index in the eurozone (PMI, 3.58 ET, 9.58 CET, consensus 57 pts.). The RBA will announce rate decision during the Tuesday’s Asian session (0.30 ET, 6.30 CET) – no change in rates is expected. The market might be impacted by holidays in major trading centers – today in the UK and tomorrow in Japan.    

Przemysław Kwiecień PhD, Chief Economist

Disclaimer, investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more