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Political decisions taken in response to Paris attack will determine the long-term consequence

FXStreet (Mumbai) - Six mass shootings in central Paris and three separate suicide bombings near the Stade de France rocked France on 13th November killing 129 people and wounding hundred others. The bloodshed comes 10 months after 12 people were killed in Paris at the satirical magazine Charlie Hebdo. President Francois Hollande has given an historic speech at Versailles stating "France is at war"

Flights bound for Paris diverted after receiving bomb threats

Following anonymous bomb threats two Air France flights bound for Paris from the United States were diverted for several hours yesterday. Flight 65, an Airbus A-380 landed safely in Salt Lake City, where passengers and crew were escorted into the terminal. The FBI however could not find evidence "which would lend credibility to the threats" against the flight. A separate Boeing 777 that left Dulles International Airport outside Washington, D.C., Flight 55, was diverted to Halifax International Airport.

Such threats could discourage people from traveling, thereby affecting price of aviation oil. At a time when commodity prices are already low, events such as these can have severe repercussions. Despite the prospect of further military action that can be taken in oil rich Syria and other middle-east regions that host ISIS in response to the Paris attack, crude prices increased only slightly to $41 a barrel. Amrita Sen from Energy Aspects believes that given the current sentiment being bearish, it will further hurt demand and in the process cause oil price to fall.

The bomb threats that came close on the heels of the Paris attack will adversely affect the tourism sector across Europe. Consumer goods or tourism, notably the luxury industry will be hit with the holiday season round the corner. The attack will impact consumer confidence for sure. The ECB is fighting to improve inflation in the region and any event that hits demand spells bad news for the central bank. Experts worry that a decrease in consumer spending and international tourism could further stagnate an already weak global economy. Also, the prospect of future attacks elsewhere could dampen consumer and investor sentiment across Europe.

Soccer match called off on fears of planned bombing

Fears of planned bombing also caused a soccer game between Germany and Netherlands to be cancelled yesterday just two hours before it was scheduled to start. German Chancellor Angel Merkel was due to attend the match.

Police also evacuated Hanover's TUI multi-purpose arena where a concert was about to start. After the attacks in Paris security measures in Hanover had been tight.

At this rate all business activities that revolve around recreation will suffer. Overall business sentiment will take a beating as people will abstain from visiting public places like auditoriums, pubs, stadiums etc. This implies that people will spend less and hence consumption will come down once again raising deflationary pressures that already plague Euro zone countries

Markets have recovered for now; stability concerns remain

Following the attack on Friday, the risk appetite dipped during the Asia trading session on Monday causing Asia stocks to finish lower. However by the time U.S. markets opened there was a notable shift in sentiment. Stock indexes in Europe and the U.S. traded mostly higher on Monday. European currencies weakened though not by a large margin. Sovereign bond yields did not show any decline that usually follows a panic situation.

Post the attacks the markets have moved as predicted so far. Analysts had expected the impact of the attacks on markets to be short lived. Investor sentiment improved soon. In the past as well it was observed that markets act resilient on the face of geo-political tensions. The past the U.S. market had taken just one month to recover from the 9/11 attacks. The U.K. market rebounded in one day after the 2005 London bombings.

However France, for now will be more focused in securing its borders and responding to the attack than in ensuring economic recovery. This might cause economy to suffer in the coming quarters. Attacks in Paris are however bound to raise the uncertainty over the outlook for the euro zone economy. Tourism and consumer demand will take a beating in the short run while the longer-term economic outlook will depend on political decisions taken in response to the attacks.

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