Market fears
The devastating events of the past few days in Paris promise to play out in a variety of ways across financial markets and the global economy.
Fiscal policy is already shifting in Europe as France, for example, ramps up police and defence spending in the wake of Friday’s terror attacks.
Currencies are moving on developments, as are everything from defence-related stocks to those in the tourism and travel industries.
I asked several observers about what to expect in a suddenly volatile environment. Here’s what they and others say:
“The economic implications are mixed. The French government will increase spending on police and the military to fight the IS. Other European countries may well join France in its fight against the terror. Depending on how expansive the euro zone countries could go, the [European Central Bank] could be brought in to deal with a totally unexpected development on the fiscal leg. It is too early to talk about a shift in the ECB policy outlook, yet a significant rise in government spending could well temper [ECB chief Mario] Draghi’s unorthodox plans. It is, however, clear that the recent developments lead the way for further depreciation in the euro. On the back of the geopolitical developments, the ECB’s December meeting could surprisingly different from what the market has positioned for.” Ipek Ozkardeskaya, London Capital Group
“At a time when global economic growth is slowing, the attacks in Paris and the uncertainty that has rippled out from that do not augur well for economic activity leading into year-end. We can speculate as much as we like about what the potential impact of recent events is likely to be but the effect on consumer confidence is likely to be considerable ... The fact is that the European Central Bank was already considering further action at its December meeting even before last Friday’s tragic events, and in the aftermath of that the only question now really revolves around how much further stimulus they do. This in turn could well influence any decision the Fed makes on raising rates next month, given that the risks of hiking now at a time when uncertainty has increased could well prompt further instability.” Michael Hewson, CMC Markets
“The net impact will depend heavily on just how frequent incidents happen. Generally speaking, the economy is fairly resilient, and the vast majority of people will simply get back to business and their daily life. And, thus, there tends to be little net impact. However, it can put sand in the gears, and this episode could thicken the borders in Europe. As well, if there are more incidents ahead, it could also prompt some to simply go out less, stay home more, and generally dampen activity. As for the markets, clearly they are sensitive to news and events, but tend to adjust quickly and move on.” Douglas Porter, BMO Nesbitt Burns
“The raid on terrorist suspects in Paris is clearly keeping markets on edge ... Investors, especially those in France, want to be able to draw some kind of line under Friday’s terrorist attack by finding those responsible and bringing them to justice. Unfortunately, in the light of the bomb scare in Hanover, even if the perpetrators of the Paris attack are caught, other terrorists are waiting in the wings. The risk is that terrorist attacks become more frequent, menacing European society and providing an ongoing source of uncertainty in financial markets.” Jasper Lawler, CMC Markets
“The aversion to risk is what we see in the wake of Paris attacks. French President François Hollande declared war against the Islamic State, meaning that tensions are not ready to end. News of the Paris raid this morning and the diversion in Paris-U.S. flights keep the market tense. The event risk is constantly present since the Paris attacks and sharp price moves in the equity complex is well on the Christmas menu.” Ms. Ozkardeskaya
CPP cites premium
Canadian Pacific Railway Ltd. has released the letter it sent to Norfolk Southern Corp.’s chief executive officer outlining the proposed $28.4-billion (U.S.) takeover of the Virginia-based railroad.
CP says the cash and stock offer of $46.72 a share and 0.348 in stock is a “substantial” premium to form a combined company that will be able to achieve more than $1.8-billion in cost savings “over the next several years,” The Globe and Mail’s Eric Atkins reports.
In a statement accompanying the release of the letter today, CP said it was trying to counter the “misconceptions” its offer is too low.
Obama pushes TPP
President Barack Obama is pressuring Canada and other members of the Trans-Pacific Partnership to approve the trade deal as quickly as possible, The Globe and Mail’s Bill Curry reports from Manila.
The 12 leaders of TPP nations met today for the first time since they announced the deal in October and released the text on Nov. 5.
Prime Minister Justin Trudeau’s government is taking an officially neutral position on the deal in Manila, arguing that it needs time to allow for the consultations they promised during the recent election. However the government has also dropped hints that it will ultimately sign on to the deal.
“Our commitment is to consult and that is what we are going to do,” said federal Trade Minister Chrystia Freeland, who attended the TPP meeting at the Sofitel hotel in Manila.