"First we would like to express my profound sympathy for those who have been personally affected by this terrible tragedy today," says Ed Jamieson of Franklin's equity department in the US.
"For those of you concerned about the economy and financial markets, we would like to offer the following: This act of terror carried out on innocent victims is meant to create a sense of fear and chaos. Unfortunately, in the short term they have succeeded. However, it is important to keep in mind that this incident has in no way damaged the economic, political or financial structure of the US or other developed countries.
"With respect to the financial markets, there may be some short-term reactions as investors look for a safe haven or otherwise speculate on the economic implications of this tragedy. In addition, there is the practical disruption of the physical damage to some of the operations of the major exchanges. However, none of these consequences is permanent. Longer term, markets will return to true value reflecting the underlying strength of the worldwide economies, political structures and financial markets. Any near-term disruptions to the financial markets will turn out to be short-lived."
Roger Bayston of Franklin's fixed-income department says the fixed-income markets began absorbing the possible impacts, with an immediate flight-to-quality. "An expected short-term increase in volatility across markets is likely when these types of events occur. However, it is important to suggest that investors proceed with reason and focus on long-term investment objectives when digesting these events. Knee jerk reactions are not advised," he says.
"Right away, yield curves across the global fixed income markets began to price in further interest rate cuts by central banks. The concern is that already shaky consumer confidence may move lower, pushing central banks to produce a more aggressive response. Markets are expecting central banks to respond. As expected, on-the-run (benchmark) U.S. Treasury securities moved sharply, with two-year Treasury securities pricing close to 3.24% yield to maturity, reflecting a 25 basis point decline from the most recent closing price. However, with major markets closing and New York based bond dealers taking precautionary measures, little activity occurred after the market stopped trading around 10:15 AM eastern time today. The U.S. dollar also traded lower against major global currencies as a result of the events. The Bond Market Association recommends the bond markets remain closed tomorrow."
Concludes Bayston, "In hindsight, this flight-to-quality is mostly expected, even though investors today have little precedent on which to rely. But central banks around the world will remain poised to ensure that financial markets remain open to move capital once financial market operational issues resolve themselves. While it is difficult to measure the short-term economic impact of this unbelievable human catastrophe, the political and monetary response should be supportive for the domestic economy. But at this time, our thoughts and prayers go to family, friends, and co-workers, who have been affected."
