Tags: Paris | attack | ECB | QE

Will Paris Attacks Push ECB to Greater Quantitative Easing?

Monday, 16 November 2015 10:41 AM Current | Bio | Archive

After the terrible events in Paris on Friday evening and today’s French Prime Minister Manuel Valls warning “More attacks are coming,” this after having said to the media Friday’s shootings were “planned in Syria” many investors raise legitimate questions about where we are heading from here on.

Investors could do well not to overlook France will have to live Christmas under “State of emergency”! The French Prime minister also said the COP 21 United Nations Climate Change Conference that will be held in Paris from November 30 to December 11 will be limited to the “negotiations” only and most, for not saying all, side-events to the conference will be canceled.

A first very important question will un-doubtfully be about the impact Friday’s events will have on “consumer sentiment” in Paris, France, Europe and in many economically important parts of the world, when we take into account the French economy remains weak and fragile and Friday’s events may impede the French government to focus more on its economy while overall the economic outlook for Western Europe, as a whole, also remains at risk when a serious shock should occur.

I’m sorry, but I don’t think at present there is one single person that can in all seriousness answer that question.

I also don’t think it could be constructive or helpful trying to evaluate the impact of the Paris events with the horrible events we have witnessed during the past 15 years in New York, Madrid, London, Mumbai, Boston, but also in Paris in January this year because of the divergences in scale, history and so on among all these different events and places.

The only, but very important thing that is clear about all these events is that we have seen the morale in all these large urban centers did remain resilient to all these assaults that were precisely intended to undermine their morale. 

Now, another logic question that comes to mind is if these Paris events will incentivize the ECB more to ease its monetary policy further on December 3, which is a little less than two weeks from now, and by doing so supporting, within its means, as much as possible the French consumers which represent about one fifth of the Euro area’s population of about 335 million while France is also the second economy of the Euro area and the sixth economy in the world after the U.S., China, Japan, Germany and the UK.

In my opinion, there remains very little doubt the ECB will ease further in December now that also the latest inflation number of the Euro area came in at +0.1 percent year-on-year which should put further downward pressure on the euro and upward pressure on the dollar.

Finally, there is the question of the broader impact these events could or couldn’t have.

It’s a fact, the impacts of these kind of geopolitical related events have been declining over recent years as we have witnessed when in March 2014 the Russian Federation annexed the Ukrainian territory of Crimea in the aftermath of the Ukrainian Revolution.

From an investor’s standpoint it has also been a fact we have been living for years now of generalized "accommodative" monetary policies and investors have become something like “convinced” Central Banks will always be there to come to the rescue whatever occurs. This, until now at least, have being the case, easy money should support equities and to a lesser extend commodities that continue to struggle with chronic oversupply situations like what's the case with oil.

Taking all this into account and provided there isn’t another disastrous event as the French Prime Minister alluded to today (let's pray that isn't the case!), I think the impact on the markets should be rather limited and sentiment could stabilize rather quickly.

Nevertheless, ECB's Vice-President Vítor Constâncio warned this morning the “terrible” attacks in Paris could hurt investor confidence, adding “It can compound all the problems that we were already facing … markets, so far, are taking it calmly … Forthcoming events ... will impact confidence and possible risk aversion."

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After the terrible events in Paris on Friday evening and today's French Prime Minister Manuel Valls warning "More attacks are coming," this after having said to the media Friday's shootings were "planned in Syria" many investors raise legitimate questions about where we are...
Paris, attack, ECB, QE
Monday, 16 November 2015 10:41 AM
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