Terrorist & Markets

On Tuesday morning, Islamic State terrorists attacked Brussels airport and a metro train, killing around 35 people and wounding hundreds in the deadliest attacks ever seen in Brussels, the capital of the European Union. French President Francois Hollande: ‘The whole of Europe has been hit.’

And the financial markets? The USD gained little vs the EUR and stocks in Europe were initially down at the open, in particular travel and airline shares, but then rallied and the markets in Frankfurt, Paris, London and even at the Brussels Stock Exchange closed higher on Tuesday afternoon.

Why, you might ask, does a terror-attack with dozens killed in the heart of Europe have basically no negative effect on financial markets?

There is a technical and a fundamental reason to consider:

Technical: There is an underlying bid in the markets, set up by potential buyers who step in when stocks drop below the level of their bids. This underlying bid can be seen as a floor for stock-prices and market-participants can assume that stocks won’t fall below this level.

Fundamental: Stock- or forex markets actually make big moves only in the case of an unexpected event or following a really positive/negative surprise by a company or the central bank. It may sound cynic, but its reality, that a terror attack by religious idiots is something that belongs to the category ‘generally expected event’ that markets don’t move anymore.

The biggest impact on markets of yesterday’s attacks was the weakness of the British Pound vs the USD, because the security problems in the EU increase the possibility that the UK votes for a ‘Brexit’ in June’s referendum.

The Brussels Stock Exchange – stocks gained in value on the day of terror in Belgium’s capital