The Paris tragedy is bound to rattle stock markets today, with currencies such as the euro and the Aussie under pressure. It’s hard to work out the eventual impact of the French president, Francois Hollande, saying “Cette fois, c’est la guerre” (this time, it’s war), but it could send the price of oil up if the action on the ground in the Middle East really hots up.
I suspect the first up reaction today will be negative but some countries and markets will benefit, while others will suffer.
This is how Craig James of CommSec reported the currency impact: “The Euro fell from the US close of levels near US$1.0775 to US$1.0737 but quickly rebounded to levels near US$1.0760. The Aussie dollar has fallen from levels near US71.30c to US71.10c. And the Japanese yen has lifted from 122.65 yen per US dollar to levels near JPY122.35 this morning.”
On one hand, France should see a fall in tourism but government spending on “the war” will be a huge stimulus. And the French themselves could easily respond defiantly to the threat and invest in France but I suspect international flows of money won’t be driven by nationalistic sentiment.
Money has always had an integrity problem and it will undoubtedly chase what market experts call safe havens, which means gold should do well today.
Of course, this comes as the global economic outlook has some question marks over it and I can’t see this helping.
My stock market crystal ball suggests that our market will slide today and again on Tuesday, after the Yanks have time to grieve on Wall Street but history shows us that Middle East geo-political events are not sustaining for negativity. Markets will go too far, with individual share prices falling way too much and professional players won’t be able to resist the new value that this expected sell off will create.
Then it will be rebound time.
Remember, too low oil prices have been very negative for Wall Street, so we could easily see the reverse effect after an initial stocks dumping for companies in travel, hospitality and insurance.
I hate to be clinically historical but markets have a short-term sympathetic reaction then, eventually, the process of investing in good value and selling perceived bad value dominates and explains daily market outcomes.
There’s no huge news to counter the horror that was Paris but there will be focus on the Fed’s latest minutes to see how close the US central bank is to a rate rise. The question could come: would the Fed delay a rise because of the fallout from the weekend’s events?
I doubt it but we have to see how markets react. Our RBA’s minutes of its last meeting will be watched closely but after that great jobs report on Thursday, where unemployment fell from 6.2% to 5.9%, I can’t see a rate cut coming for Christmas.
Try to have a happy week.
Click here to subscribe to the Switzer TV channel on YouTube and keep up to date with all of our shows.