Market reaction to Paris atrocities

Businessman graphThe terrorist attacks that happened last Friday and resulted in the deaths of at least 129 people, have had an impact on the Eurozone markets.

According to Howard Archer, chief UK and European economist of IHS Global Insight, the immediate reaction was a weakening of the euro, a fall in equity markets and a move into safer assets such as US treasuries, gold and some European bonds.

“So far the market reaction has been limited,” says Archer. However, he believes that the attacks will strengthen the likelihood that the European Central Bank (ECB) will deliver more stimulus at its December 3 policy meeting.

“The ECB may well see the downside risks to Eurozone growth and inflation being magnified by Friday’s terrorist attacks in France,” he says.

But the report goes on to state that previous atrocities such as the London tube and bus bomb attack in 2005, coupled with the Madrid train bombings in 2004 had a limited impact on the markets. In the UK, consumer confidence actually rose in July (when the bombings occurred) while the economy still grew 1.0% quarter-on-quarter in the third quarter and by 1.4% quarter-on-quarter in the fourth quarter.

The Bank of Spain is reported to have commented after the Madrid attacks that: "In the first look at the information analysed, it appears that the attacks of March 11 have not affected the pattern of growth in any significant manner, and consumer and business confidence seem to have remain unchanged.”

While Paris will understandably take a hit on tourism, it appears that markets are resilient to acts of terror and defense stocks should receive a boost by this recent atrocity.

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