Initial Economic and Political Implications of Osama Bin Laden's Death

US Special Forces killing of Osama Bin Laden is being widely reported, albeit without much detail so far. The economic and political implications are curious.

Bettina Wassener in the New York Times reports that both gold and oil are down, the implication being that this may reduce global uncertainty tied to terrorist activity. That seems likely to be an almost certainly short term phenomenon as others rise to seek his mantle. Nate Silver of the 538 blog comments on the political implications. His take is similar, the political 'win' for President Obama is likely to be short, but there will be some longer term positives.

Bettina Wassener on the short term market reactions:

"U.S. stock futures rose modestly Monday and the price of oil and gold fell as news of Osama bin Laden’s death eased global security concerns, at least for the moment.

Markets were generally higher in Asia and in early trading in Europe, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 0.2 percent. The CAC 40 in Paris rose 0.3 percent and the DAX in Frankfurt rose 0.7 percent. London markets were closed for a bank holiday. Standard & Poor’s 500 index futures rose 0.4 percent, suggesting Wall Street would gain at the opening.

The dollar was mixed. The euro rose to $1.4815 from $1.4806 late Friday, while the British pound slipped to $1.6693 from $1.6706. The dollar rose to 81.47 yen from 81.20 yen

The Japanese and South Korean markets were already 1 percent higher before the U.S. President Barack Obama announced that U.S. forces had killed bin Laden in Pakistan. By the close the Nikkei 225 index had gained 1.6 percent and the Kospi by 1.7 percent. This took the Nikkei to 10,004,20 points, the first time it closed above the 10,000-point mark since the devastating earthquake and tsunami that struck the country on March 11.

Still, compared to the enormous political and psychological significance of bin Laden’s death, the stock market reaction was relatively muted.

“News of the death of Osama bin Laden has had a limited impact on regional asset prices,” analysts at Royal Bank of Canada summed up in a note on Monday.

Some of the sharpest reactions to the news of bin Laden’s death were in the commodities markets. Oil prices slipped, with benchmark U.S. crude for June delivery falling $1.62 to $112.31 a barrel on the New York Mercantile Exchange.

Many analysts cautioned, however, that bin Laden’s death could stoke, rather than ease, worries about oil supplies and global security in the longer run if it led to retaliatory attacks.

“This is a positive development in the campaign against terrorism,” Jonathan Ravelas, chief market strategist at Banco de Oro Unibank in Manila told Bloomberg News. “In the last 10 years, bin Laden’s presence has been a serious threat to global stability. The flip side is this could be followed by retaliation activities from his supporters.”

Gold, which had hit a new record of $1,575.79 an ounce earlier on Monday, fell to $1,551.80 in European morning trading. The precious metal, which is seen as a safer investment and tends to rise during times of rising inflation and global unrest, has been hitting successive record highs in recent weeks.

In India, the Sensex index was 0.6 percent lower by midafternoon amid widespread expectations that the Indian central bank will once again raise interest rates on Tuesday in a bid to tame rising inflation. Most other stock markets in the region, including Singapore, Hong Kong and mainland China, were closed for a public holiday.

Nate Silver on the political implications:

"Osama bin Laden is dead.

I got the news on Twitter while in a taxi back from J.F.K. Airport. I told my cabbie, who was in disbelief at first, to turn the radio on. We took in the story together. I’m as patriotic as the next guy: it was a nice moment.

I suppose I’m supposed to weigh in on the electoral implications of this. It’s both very easy and very difficult to write about.

To state the obvious, this is good news for Barack Obama’s re-election campaign. I can’t imagine a single, atomized piece of news, foreign or domestic, that would be better for the President.

Although the Republican candidates had not seemed especially interested in making an issue out of national security — perhaps because Mr. Obama’s foreign policy has been fairly hawkish and not clearly differentiated from theirs — it at the very least neuters the issue for them. It presumably will become a significant talking point for the President — the sort of thing that swing voters will be reminded of in a commercial on the eve of the 2012 elections.

The news will also, almost certainly, trigger a significant improvement in Mr. Obama’s approval rating.

The sense in which I’d urge caution is that the former is not equal to the latter. Yes, this is going to help Mr. Obama — to some degree or another — in November 2012. And yes, it’s also going to make Mr. Obama look much more formidable in the near-term. But I’m not sure that the magnitude of the bump that Mr. Obama might get in the Gallup tracking poll is going to be especially predictive of how much the residue of this news might produce for him 19 months from now.

In 1991, the top 8 or 10 Democratic candidates skipped the presidential race because George H.W. Bush seemed unbeatable in the wake of the popular Gulf War. But by November 1992, Mr. Bush’s approval ratings were in the 30s, and Bill Clinton defeated him easily — as most any Democratic candidate would have.

That is not to suggest that this news won’t be helpful to the President. Of course it will help him. But, the 2012 election was probably not going to revolve around national security. Instead, the Republican nominee was probably going to attempt to make the campaign about the size of government and the future of the welfare state: how to deal with entitlement programs in the face of an increasing national debt.

This news may not change the focal point of the campaign. And it may not cause Americans to forget about the direction of the economy, which they remain largely unhappy about.

The biggest mistake that Republican candidates could make would be to be intimated by the approval ratings of a president who, while not easy to defeat, may still be quite vulnerable in November 2012.