Why Hasn’t The EU Terror Threat Hit Financial Markets Harder?

Why Hasn't The EU Terror Threat Hit Financial Markets Harder? Eiffel Tower

If there is one thing that has held true in recent times, it is that terror attacks almost never affect stock markets in a positive way, at least not initially anyway.

From airline stocks to other areas of the travel and tourism industry, various stocks and shares are placed under the microscope when terror threats or attacks rear their ugly head.

In these circumstances you would expect broader share indexes to be hit quite hard, especially in the economic area where the attacks have taken place, which at this moment in time is in the heart of the EU.

So why haven’t the major stock indexes in The European Union fallen further over the past few weeks? In fact, on the 20th of November 2015 the DAX hit its highest level in 3 months.

Why Hasn't The EU Terror Threat Hit Financial Markets Harder? European Central Bank (ECB)

While there are many possible reasons for this, one major contributing factor will likely be that investors have their eye on the upcoming December meeting of the ECB.

Many investors will be hoping that, given the recent financial headwinds facing the Euro region, coupled with the further effects that France’s extended state of emergency and Belgium’s heightened alert level might pose to the eurozone economy, well this just might give the ECB a further nudge into increasing stimulus for the euro area as a whole.

Regarding the potential market reaction to recent terrorism concerns financial journalist Michael Hewson mentioned in his recent post, ‘for now it appears that markets are parking those concerns’.

This might not continue to be the case if the ECB fails to offer a glimmer of hope in their December meeting, however. The hope would be that further ECB stimulus action might give the European economy a much needed boost to stave of what recent figures have suggested may well be another impending European slowdown.

Why Hasn't The EU Terror Threat Hit Financial Markets Harder? New York Stock Exchange

We’ve been dealing with a similar situation in the US markets for some time now, where poor economic data – which would ordinarily weigh heavily on the markets – has instead been giving the markets some support.

Investors have been betting that any negative data coming out of the US would delay the much anticipated rate lift-off by the Federal Reserve. While this has continued to be the case for some time, it does appear that many in the Fed are now preparing the markets for lift-off sooner rather than later.

This has finally been met with some positivity by investors as they have jumped onto the back of the Fed’s confidence, boosting US stocks as a result.

So, will European markets be able to maintain their resilience in the face of terrorist threats? Well, a lot may depend on Mario Draghi and how supportive he is willing to be in December.

If no further stimulus is announced in the coming months then you would have to feel that a eurozone economy which is already struggling to keep its lackluster recovery going, may well tip back into negative territory if the threat of terror continues to weigh heavily on the minds of both tourists and those at home, who may well feel a little frightened to take to the streets and shop in what may be viewed as potential European target cities in the upcoming festive period.

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