UK & Europe
Initial panic selling in the aftermath of the Paris terror attack gave way to a day of choppy market action where stock averages moved between gains and losses. The French CAC was a laggard with some prominent French companies in the travel and leisure sector including Accor (PA:ACCP) Hotels seeing substantial losses.
In the light of the downing of the Russian airliner, it seems likely there will be more air strikes and more attacks like those seen in Paris, which has the potential to be an ongoing source of unease for markets.
A rebound across the basic resource sector was the main positive on the FTSE 100 but even that started to slide heading into the afternoon as weak copper prices lead to crude oil reversing early gains.
Chilean copper producer Codelco cut the premium on its copper exports to China to its lowest level since 2013. The size of the cut was the biggest since 2009, during the financial crisis. Codelco’s actions are an attempt to drum up some demand in China where the slowdown has caused a six-year low in copper prices. The premium cut may help Codelco take market share from other producers, who are also cutting premiums, but can’t address the fundamental slowdown in demand for copper as China’s economy slows and its housing bubble deflates.
The possible re-introduction of border controls and other tighter forms of security as well as the potential knock to traveller confidence has sent travel and leisure stocks lower. Air France shares dropped sharply, dragging shares of BA-owner IAG (L:ICAG) down with them. Travel companies such as Tui AG NA (L:TUIT) and Carnival (L:CCL) as well as luxury brands such as Burberry are top fallers on the potential impact the terror attack could have tourism, typically a large source of demand for luxury goods.
Retailers including B&Q-owner Kingfisher (L:KGF) and Dixons Carphone (L:DC) have dropped on a report highlighting the cost to retailers of customer returns following the ‘Black Friday’ sales event. Black Friday by its nature encourages spur of the moment purchases, which are more likely to be returned in the cold light of day.
US
With uncertainty still reigning following the Paris attacks, US stocks dropped slightly on Monday’s open. The uncertainty has been offset to some degree by more mega merger news as Marriot International (O:MAR) buy Starwood Hotels & Resorts Worldwide (N:HOT) for $12.2bn to create the world’s largest hotels group.
The merger is another example of a traditional industry taking advantage of high valuations and low interest rates to overcome the threat of new technology and slowing global growth. Marriot hopes to make $200m per year in cost savings, putting it in a better position to see off competition from the likes of couch surfing app Airbnb. The market reaction to the deal was muddied by a global downswing in leisure stocks on the threat of rising terrorism impacting demand for travel.
FX
The dollar was modestly higher on Monday despite another weak Empire Fed manufacturing report which has now contracted for the fourth month in a row with a seventh straight monthly drop in new orders.
The Japanese yen was lower after the latest GDP data showed Japan slipping back into recession, despite huge money printing from the central bank. USD/JPY has popped back above 123.
Explicitly dovish comments from Bank of England chief economist Andy Haldane combined with a drop in monthly Rightmove house prices left the British pound slightly lower. Mr Haldane said “the case for raising interest rates is still some way from being made.” For the most part Sterling is consolidating ahead of UK inflation data released on Tuesday. GBP/USD dropped back below 1.52.
The euro dipped in the wake of the Paris attacks but recouped most of its losses after disappointing US manufacturing data. EUR/USD is oscillating around 1.07.
Commodities
Goldjumped higher by 1% early on Monday in a kneejerk flight to safety against further potential terrorist fallout. The gains follow a sharp reversal from near five-year lows but nonetheless was off its highs as traders used the bounce to sell into the broader story of a Federal reserve rate hike.
Oil trader higher when the French government retaliated against the terror attacks in Paris with air strikes in Syria but gave up gains as equity market settled. Brent failed to hold above $44 per barrel.
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