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Stocks in Europe rallied this morning with the Euro Stoxx 600, an index of European companies, rising 0.35%. The French CAC 40 lagged behind its European counterparts, rising 0.10% compared to the German DAX which rose 0.34%.
For France, regional elections in three weeks will be very closely watched. Extreme right wing party Front National were already tipped to do well, and given their anti-immigration stance, it's possible that Friday's events will cement this claim further. The migration crisis is a political hot potato in all European countries at the moment, and if this occurred simultaneously with a recession this could spell trouble for the conservative parties. Another ramification of Friday's attacks is the likely confidence hit to the French economy which may in turn increase the dovishness at the ECB meeting in just over two weeks.
The euro recovered most of its drop versus the yen as investors assessed the fallout from the worst terror attacks on European soil in almost a decade. The euro weakened 0.43% against its American counterpart, now trading at €1.0726/$.
Gold jumped in trading today, with the precious metal increasing 0.85% to $1,093/Oz and silver ended a run of 12 straight declines. The precious metals rose as a reaction to the terror attacks, solidifying its status as a safe haven. Analysts cautioned that the gains may be short-lived, with the metal’s trajectory still likely to be determined by the Federal Reserve’s monetary policy. Base metals continued their decline, with copper falling to a six-year low, losing as much as 1.3 percent to $4,763.50 a metric ton.
While the murder of at least 129 people in Paris occurred at a fraught time for global stocks, the history of terror incidents over the past 15 years shows market reactions are often sharp and short-lived. In this case, somewhat defiantly, the incident has seemingly failed to rattle markets.
In the bond space, European sovereign yields remained relatively unchanged with the benchmark German bund trading at 0.559% and Italy and Spain trading at 1.571% and 1.799% respectively. The 10 year French government bond was also relatively unchanged at 0.877%, increasing 0.5 bp.
Oil rose after West Texas Intermediate crude slumped 8 percent last week as investors weighed a global supply surplus against heightened geopolitical tension following the French tragedy. WTI for December was up 0.9 percent at $41.09 a barrel. Brent for January rose 0.9 percent to $44.85.
Markets sentiment will probably remain fragile in the near term after the events in Paris. The G20 meeting in Turkey started on Sunday and the attacks will likely dominate the agenda. Bloomberg has already obtained a draft of the communiqué where leaders continue to pledge job creation and to bolster inclusiveness but a separate statement on terrorism will also touch on tightening border controls. Elsewhere this week, as expectations for European easing continues to build, Draghi’s keynote speech at a Frankfurt banking congress on Friday will be closely watched by markets in light of recent events.
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