Terrorism in Paris; how financial markets react
Friday 13th Paris attacked; markets go ‘risk-off’
Paris was attacked on Friday.
More than 200 129 dead and more wounded. For the uninitiated, Wikipedia page is available. Natural reaction from stock markets is down.
- Stock indices DJ30 and HSI gap down but cover gap.
- Dollar Index does the same.
- WTI is up slightly based on heightened risk especially since this Paris attack might widen conflict in Middle East. However it is still below key level at this moment.
- CAC40 is not open yet so European opening hours we can expect another down move brought on by CAC40 action.
- Question: will negativity from this sad event trigger a wider sell down in stocks and other markets?
Follow smart money on charts
It is true that global markets are shaky right now so a bearish event might provide trigger to a broad sell-down. Stock investors might have to be wary of some sectors like tourism especially following downing of Russian flight A321 over Egypt as well. When in doubt, I find it useful to look similar instances in the past.
In my opinion, this Paris attack is closer to July 7 2005 bombing incident in London. There was a knee jerk reaction in the market which turned out to be a one-day affair only. How markets operate today ending with US close tomorrow morning will be important indication of how the rest of this week is going to be traded.
I find the best way to deal with this kind of event is to treat it as noise, to look at the bigger picture.
- Global stocks are likely to continue heading downwards although decline will probably speed up in certain sectors like hotels, cruise, airlines. This is especially true when people perceive danger, become adverse to travelling. Insurance premiums, customs checks, delays increase while visitorship number, hotel occupancy decreases. Note all this at a time when GDP numbers are shaky – no good.
- Some sectors such as the military industrial complex will rally. Afterall what better way to make more money than to deliver more missiles which is positively correlated to body count.
- For WTI, be careful that since it has just broken a big level, it is at that stage that is just a little bit difficult to separate a pullback from a false break. If price stays below neckline for coming week, it is safe to assume that it has successfully moved out of consolidation and poised to go lower. If it suddenly jumps above green zone in a very short time, then it is highly possible that the break down is a possible wash n rinse or bear trap.
- If WTI is up, look for CAD to strengthen against fellow commodities AUD and NZD. In following charts, see NZDCAD do a bearish expansion week – week 2 weeks ago and how the chart pattern resembles a bear flag. Critically all this happening inside green zone which is a congestion. Shorts have to be wary of ‘2 YL’ which is my indication for 52-week low.
- Additionally look for oil-industry stocks to be given a breathe of life. (See Binni’s interview by Shin Min Daily today where she discusses 2 SGX-listed oil industry stocks.)
Everything is ‘what-if’ which is not very clear right now. I think things will be clearer once we see how markets open at Europe later in the afternoon and how the US is going to close with all this going on. As for the gungho, can look into some pre-positioning at suitable levels.