Wall Street is poised to open higher, but oil and precious metals drop sharply
Shares on Wall Street and around the world were lifted by news that US forces had killed Osama bin Laden with the Dow Jones industrial average climbing to a three-year high.
Investor confidence was boosted by Barack Obama's announcement that the world's most wanted man had been killed by special forces in north-western Pakistan nearly a decade after the 11 September 2001 attacks.
However, oil dropped sharply and precious metals such as gold and silver – which have risen to record highs in recent months – also dropped back as investors signalled more appetite for risk.
The Dow Jones climbed to 12,875 after the opening bell before falling back slightly as investors reflected the euphoria of crowds gathering a few blocks away at the site of the infamous terror attacks. The broader Standard & Poor's 500 rose 0.48% to 1370. In Europe, Germany's DAX rose 0.59% to 7559 while the CAC-40 in France was 0.33% higher at 4120.
Markets in Britain, China, Hong Kong, Malaysia, Singapore and Thailand were closed because of holidays, making the global reaction more muted.
Oil prices lost more than 3% earlier in the day, with Brent crude futures for June sliding $4.22 to $121.67 a barrel and US crude down $2.40 to $111.53. "There's probably a kneejerk reaction to the extent that part of the geopolitical risk has been supported by al-Qaida, so there will be an initial sell-off," Jeremy Friesen, commodity strategist at Société Générale, told Reuters.
Analysts said after a temporary boost markets will focus on more fundamental matters again, in particular the progress of the global economic recovery and how central banks respond to higher inflation.
Ric Spooner, market strategist at CMC markets, warned: "There's a danger this could be a bit of a false spike in the market. We are struggling to see the logic of it. I guess it's based on euphoria, a feeling that it takes away a reason for international tension. But it's difficult to see really the logic behind it being an ongoing rally."
Other analysts warned that the economic optimism surrounding Bin Laden's death could prove short-lived.
"Markets across the globe received a bit of a boost ... as news broke that US forces had killed Osama bin Laden," said Ben Potter, a market strategist at IG Index.
"However, like many euphoric bounces, they are often short-lived, especially given the possibility for reprisal attacks from extremists."
David Buik at BGC Partners spoke of a "momentous day", but added: "However, this may well be a relief rally. Bin Laden was symbolic, but al-Qaida still flourishes. It is an ideology, which is not going away. If there are no reprisals in the Middle East, then all well and good. However, if equities crack on, will the US treasury market suffer? With such a huge deficit, higher yields might transpire for US treasuries, which would be very damaging for the recovery of the US economy."
In the metal markets, silver prices tumbled more than 6%, marking their biggest loss since late 2008, and gold fell more than 2% off a record high.
"It's a psychological and kneejerk reaction and we have to see how long it lasts," said Koen De Leus, a strategist at KBC Securities, referring to market responses to Bin Laden's death.
Oil prices were already down after news that Nato air strikes over the weekend had killed one of the sons of the Libyan leader, Muammar Gaddafi, and after industry sources said Saudi Arabia had raised output in April. But analysts said they expected them to fall further.
"If Osama is taken out, you are going to see risk premium being wiped out from the market. It is going to bring down oil prices by $5 to $10 if people warrant that risk premium is important," said Jonathan Barratt, the managing director of Commodity Broking Services, based in Sydney.
This week brings a flurry of economic news: a run of economic data in the US, culminating on Friday with unemployment numbers (non-farm payrolls) for April, as well as interest rate decisions from the Bank of England and the European Central Bank on Thursday. Neither central bank is expected to move this week, although the ECB is likely to hint that it will follow up April's rate rise – the first in nearly three years – with another increase in June. In the UK the jury is still out on when the first rise will come.