Saddam Euphoria evaporates fast

published 31 October 2005

So much for the "Saddam boost", says Susan Nelson in The Scotsman. Last weekend's capture of Saddam Hussein fuelled hopes of greater political stability in Iraq, prompting gains in Middle Eastern equity markets and sending Japan's Nikkei up 3% on Monday. But elsewhere, early euphoria evaporated fast, with the FTSE 100 closing virtually unchanged and the Dow Jones index falling back after an initial advance (although it managed to remain above the key 10,000 level, which it breached last week for the first time in 18 months). The dollar slid to a new low against the euro, and crude oil clawed back its losses after falling on expectations of a faster recovery in Iraqi production.

"Not normally noted for their rationality, this time markets got it right," said The Guardian. There is no evidence that Saddam was directing the "terrorist war" against occupying troops or that he could affect oil production. Indeed, the Iraqis have said that "nothing has changed" on the latter front since the weekend. And the dollar soon resumed its slide because the capture of "one homicidal tyrant cannot disguise" a 5% current deficit and an administration keen to see US exports become cheaper. Furthermore, "the risk aversion in markets" created by the Iraq imbroglio had already largely dissipated, says Paul Lambert of Deutsche Asset Management in The Wall Street Journal Europe. Catching Saddam does nothing "to change the big picture".