Paris attacks threaten stocks and Europe’s fragile recovery

Terror attacks likely to put France’s CAC40 index at centre of financial storm

After the Paris attacks, stock market across Europe are preparing themselves for turmoil (Reuters)

Stock markets across Europe are braced for turmoil on Monday as the horrific Paris attacks reverberate through the financial world and threaten the region’s still-fragile economic recovery.

The murderous assault by Isis – claiming at least 129 lives – is likely to put France’s CAC40 index of leading companies at the centre of the storm amid fears over the potential blows to consumer confidence and tourism, City experts and economists warned.

Friday’s attack came on the same day France cheered a modest return to growth, as the economy grew 0.3 per cent in the third quarter after flatlining between April and June. Market watchers said the massacre could threaten that, as well as sending the CAC40 – up 13 per cent this year – into steep falls.

CMC Markets’ chief market analyst, Michael Hewson, said: “We’ve already seen significant weakness in stock markets leading into these attacks … I think the mere fact that we’ve seen this attack and a state of emergency and troops on the streets – the market reaction to that is going to be overwhelmingly negative, simply because of the economic impact and the knock to confidence.”

Following the Madrid attacks in March 2004, European stock markets fell by between 2 and 3 per cent. Even before Paris, speculation was mounting that the European Central Bank could extend its €1.1trn (£777bn) quantitative easing programme next month in response to worries over weak growth and lingering low inflation. “The economic recovery in Europe is fragile as it is … this more or less makes it inevitable,” Mr Hewson added. That will further weaken the euro, down more than 3 per cent against a basket of currencies since mid-October.

France meanwhile has the highest number of tourists in the world, with 83 million visitors last year generating around €150bn in revenues according to the French Government - around 7 per cent of its overall economy.

IHS Global Insight’s Howard Archer said: “It is obviously likely to significantly hit the Paris economy in the near term, and there could also be a knock-on effect elsewhere in France. There could also be an adverse impact on tourism in some European countries where people think attacks are most likely to occur – not just in France. Many other countries will be wondering if they could be the next to suffer such an atrocity.”

The Bank of England has intervened after past terror attacks, providing funding lines to banks when the financial system has been spooked by events. It is understood that Threadneedle Street will not act today unless there is a “severe” market reaction. Banks can borrow UK gilts from its discount window in times of stress, while the BoE also has a so-called Contingent Term Repo Facility - never yet been used - to provide emergency assistance in “exceptional” circumstances.