Short-term market drop likely after Paris terror

Associated Press

NEW YORK

The value of stocks, crude oil and the European currency will likely fall this week as investors worry about what the Paris terror attacks will do to consumer confidence and key parts of the global economy.

The public nature of the targets – cafes, a stadium and a concert hall – could make travelers hesitant about visiting Paris or other major cities. A decline in tourism in Europe could weaken the euro, while oil prices could fall on fears that demand will drop. The attacks also could hurt major airlines in the U.S., Europe and Asia.

SHORT-TERM DECLINES

Many analysts believe any economic impact will be short.

“As horrific as these events are – and this is truly awful – economic activity does tend to be pretty resilient,” said Howard Archer, an IHS Global Insight analyst in the United Kingdom. “At the end of the day, people have to get on with their lives.”

Sam Stovall, U.S. equity strategist for S&P Capital IQ, said the U.S. stock market will likely fall about 2 percent today, with larger declines in Europe. But he said “it’s not something that’s going to throw the European economy into recession.” Based on the reactions to similar attacks in the past, Stovall expects stocks to begin recovering after about a week.

EFFECTS ON TRAVEL, CRUDE OIL

Because the attacks aren’t near oil fields, production isn’t likely to be affected. But demand for gasoline and jet fuel could fall as people cut back on travel.

That means oil prices could fall further, even as they already were approaching last summer’s six-year lows of below $40 per barrel.

France is among the top tourist destinations in the world, so airline revenue and stocks could be hit.

But people might switch trips to the U.S., which could partially offset Europe declines.

Oil supplies and prices could be affected if NATO allies go to war against the Islamic State in Iraq and Syria and if ISIS interrupts the flow of oil with attacks on Saudi or Iraqi oil production or shipping in the Suez Canal.

BROADER ECONOMY

Before the attacks, investors already were nervous about economic slowdowns in China and Europe. In addition, there were jitters in the U.S. even though its economy appears stronger than the rest of the world. Last week, U.S. stocks suffered their first weekly decline after six-straight weeks of gains.

Jack Ablin, chief investment strategist for BMO Private Bank, said gold and “safe haven” currencies such as the British pound, Swedish Krona, and Swiss Franc might get stronger.

Ablin has concerns about broader economic and social problems within the European Union. He said countries might react to the attacks by tightening borders, even though they need young immigrants to fill jobs.