Paris attacks assail confidence

The comparison of the tragic Paris attacks with the events of 9/11 always was going to be farfetched as far as the financial markets are concerned.

Terrorists who brought down the World Trade Center were intent on hobbling global capitalism, and to some extent it worked. The New York Stock exchange, the heart of global share trading, was shut down for several days. And the plumbing of the monetary system was badly damaged.

It took a herculean effort by Alan Greenspan at the Federal Reserve, Britain’s then governor of the Bank of england eddie George and other policymakers to pour funds into the system and to ensure that the banks could continue to operate.

It was not without long-term consequences. By cutting US interest rates to the bone, central bankers in fact put in place the loose credit conditions that eventually led to the financial crisis.

The Paris attacks were on citizens, consumption and confidence rather than the financial system itself. So inevitably the impact on markets has been far less consequential. It is no surprise that the stocks most hurt by events were those in the airlines and travel sector. Paris in the winter is unlikely to be a favoured shopping destination this Christmas.

Shares of America’s defence giants moved in the opposite direction, encouraged by President hollande’s talk of war.

Another place where the terror attacks will make a difference is at the Frankfurt-based european Central Bank.

Its job, as it was for central banks after 9/11, is to make sure that an already struggling eurozone economy does not go further backwards. It is now expected that Mario Draghi will step up monetary easing next month (if not before, using emergency powers) and possibly taking its deposit rate deeper into negative territory.

The more negative interest rates, goes the theory, the more expensive it becomes to hold deposits with central banks in the eurozone and the more pressure there is on banks to lend and consumers to spend.

The market belief that the Paris attacks will lead to more quantitative easing and negative rates was among the factors driving the euro to a seven-month low against the dollar, falling 0.5pc.

It also slipped marginally against the pound. The trend should not come as any great surprise as interest rate policy stiffens in the US and weakens in europe.

The political fallout from the events in France also will make an economic difference.

Tighter border controls will put a hitch in the free movement of labour across the eurozone which has been helpful in mitigating the worst of the impact of unemployment in the stressed states.

In the past, trouble that begins in the Middle east has caused the oil price to spike, but not any longer given the current glut of supply.

In latest trading, Brent Crude slipped 2.43pc to $43.39-a-barrel. That is a figure that may give further pause to investors in Shell, who must be wondering if the £47bn BG takeover deal makes sense any longer.

An obvious political step for the Western democracies is to slow the diplomatic opening to Iran and link the nuclear deal to progress on eliminating support for terrorism in the Middle east and across North Africa.

So far that is not happening. As the tectonic plates in the Middle east do shift, oil prices could become even more unhinged.

High stakes

IF the leaks are to be believed then few of the main actors are likely to emerge unscathed from the official report into the hBOS collapse.

One of the key findings is said to be that the directors of hBOS placed pressure on KPMG, the ‘independent’ auditors of hBOS, to paint an optimistic picture of possible bad loans, ahead of the £4bn rights issue to existing shareholders in April 2008.

That would reflect badly on the directors headed by chief executive Andy hornby.

But it is no advertisement for auditors KPMG who are meant to protect investors from harm and not cave in to wishes of directors.

As for hornby, his current employers Gala Coral seem unperturbed by the mistakes that he made in the past.

They think he is doing an effective job and would not feel obliged to part company even if he were to be banned from working in the financial sector.

One might have thought that of all industries gambling and gaming ought to adhere to the highest standards of integrity given the enormous potential for reputational damage. It seems not.

Checking out

TAKeOveR deals normally send the price of the target company soaring.

Not in the case of Marriott’s £8bn offer for rival Starwood, owner of the Sheraton, Westin and St Regis hotel brands. Starwood shares fell 8pc in disappointment at the takeout price.

Blame Airbnb, which is doing for the hospitality sector what Uber is doing to transport and Amazon has done to books and CDs.