Wednesday 22 November 2017

Markets struggle as attacks overshadow signs of recovery

EU flags fly at half-mast outside the European Council building in Brussels yesterday. Photo: Bloomberg
EU flags fly at half-mast outside the European Council building in Brussels yesterday. Photo: Bloomberg
German police officers guard a terminal of the airport in Frankfurt, Germany. Photo: AP
Colm Kelpie

Colm Kelpie

Global shares largely recovered their early losses yesterday evening in the wake of the terrorist attacks on Brussels, but travel and leisure stocks were badly affected.

Air France-KLM Group, Ryanair and hotel operator Accor slipped 3.3pc or more, dragging travel and leisure shares to the worst performance on the Stoxx Europe 600 Index.

But by late in the afternoon, stocks overall had managed to recover from sharper losses and bonds and gold eased back from their earlier highs.

The ISEQ was little change at the close, down just 0.04pc, while the FTSE and CAC 40 actually recorded slight gains.

Analysts had believed the market jitters would be short lived.

"So far we are holding up pretty well with some emphasis on safe haven," said Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Illinois.

"It looks like the market impact will pass pretty quickly, depending on follow-up obviously. If we see additional attacks in coming days, that changes the equation."

But overall, concern about attacks in the capital of the European Union overshadowed reports on the Eurozone economy.

Manufacturing and services in the region expanded more than estimated, while German business confidence improved for the first time in four months, data showed.

The market reaction came as a survey found that business activity across the Eurozone has risen at its fastest pace since late last year, with Germany posting solid growth.

But France continues to stagnate.

The flash Eurozone Purchasing Managers' Index (PMI), which tracks changes in business activity across the region, rose from 53 in February to 53.7 in March.

But despite the rise in March, the average PMI reading for the first quarter of the year was 53.4, the lowest quarterly trend for a year.

The upturn in March was led by services, where business activity growth revived from February's 13-month nadir to reach a three-month high.

Chris Williamson, Markit economist, said the Eurozone saw renewed signs of life at the start of spring.

"The March PMI showed a welcome end to the worrying slowdown trend seen in the first two months of the year, putting the region on course for a 0.3pc expansion of GDP in the first quarter," Mr Williamson said.

"The German economy looks to have expanded by 0.4pc in the first quarter, but France remains close to stagnation despite seeing a return to growth in March."

German investor confidence rebounded from a 16-month low after market turmoil calmed and the European Central Bank announced fresh euro-area stimulus.

The ZEW Centre for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, advanced to 4.3 in March from 1 in the previous month.

Economists predicted an increase to 5.4, according to a Bloomberg survey. An earlier report showed German business confidence also rose.

The ECB this month announced interest-rate cuts, more bond purchases and a potential subsidy to lenders in a renewed bid to quash the threat of deflation.

Bank-led equity sell-offs have eased, reducing the risk that lenders will pull back and choke off a fragile recovery.

"We saw some stabilisation in the equity and other financial markets help improve sentiment," Ralph Solveen, an economist at Commerzbank in Frankfurt, said before the report. (Additional reporting agencies)

Irish Independent

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