Equity markets in Europe and North America traded sharply lower Monday in the aftermath of last Thursday's terrorist bombings in Spain. The U.S. market is down even as economic data released by the government was positive.
The U.S. industrial sector registered a 0.7 percent advance in February, its fastest growth in nearly three years. Financial markets had anticipated a slower rise in industrial production.
But this positive report did nothing to overcome the security jitters that have engulfed markets since last week's terrorist bombings in Madrid and Sunday's rejection by Spanish voters of the long-ruling conservative government.
Concerned about security and the economic policies of the incoming socialists, the Spanish stock market fell over four percent Monday. This follows substantial declines on Friday. In Europe as a whole a composite market index, the Eurotop, was down nearly two percent Monday, closing at its lowest level this year. The Eurotop index lost over three percent last week.
Here in the United States, worries about a weak jobs market had already stalled the stock market rally that was very strong in 2003. All of the 2004 gains in the market have been given back in the past three weeks.
On Tuesday policy makers at the U.S. central bank meet to decide monetary policy for the next six weeks. Very few market watchers expect any change in short-term interest rates, which at one percent are at their lowest level in 45 years. Dennis Gartmann, a market strategist in Tidewater, Virginia, tells Bloomberg news that U.S. rates will stay low for many more months.
"The Fed has no propensity whatever to raise rates," he said. "When I started saying two years ago that the Federal Reserve was not going to raise interest rates in 2004 people laughed. I'll tell you now that they're not going to raise rates in 2004 and on into 2005."
Mr. Gartmann says the only reason the central bank would raise rates is if inflation rises or the labor market improves drastically.
Another concern weighing on the market is the rising price of crude oil. Oil prices have now reached over $35 a barrel, their highest level in one year and considerably above the much lower prices that were predicted once the Iraq war came to an end.
