Paris terror attack: typical risk off but somewhat different - Rabobank

FXStreet (Guatemala) - Analysts at Rabobank suggested the potential market reaction to the Paris attacks on Friday.

Key Quotes:

"We are all struggling to come to terms with the full implications ofFriday’s atrocity in Paris. Yet as this follows similar attacks in 2015 in Lebanon, Egypt, Turkey, and Kenya, clearly this is not a “Paris problem” anymore than some in Paris might have thought it was a “journalist problem” or a “Jewish problem” after the Charlie Hebdo/kosher supermarket outrages: as many commentators are noting, all Europe has been awoken to the terrible realization of its own vulnerability.

There are, of course, potentially massive implications on many fronts. From a markets perspective, which feels very ‘small’ in the face of recent events but are nonetheless the remit of the Global Daily, we can almost certainly expect a sharp fall in equities today. At the same time, we can expect to see a rally in bonds, which already had a case to rally based on both Friday’s and this morning’s data (on which more later).

We can also expect JPY and USD to rally as ‘risk off’ prevails. Previous experience with terrorism suggests these reactions might all be short-lived, but this time may be somewhat different due to the scale of the attack."

"Indeed, on Friday France officially re-implemented border controls, joining a growing list of countries that had already done so due to the refugee issue. However, in reality not much on the ground changed, a reflection of the success of ‘borderless Europe’. That may now be under threat, which would obviously have a negative impact on economic activity across the continent. Further, French President Hollande declared Friday’s terrorism an “act of war” and has increased airstrikes on Syria.

While it is still not clear if other European countries will join France in this fight or not, military experts stress a long, hard military campaign would be required to achieve any kind of real victory against IS/Daesh. That, together with increased domestic security measures, will prove extremely expensive and seems incompatible with the Eurozone’s desire for austerity. Significant choices may have to be made."
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