Yesterday marked a sad day for Europe as Brussels was hit by multiple terrorist attacks following the capture of the main terror suspect in the Paris bombings over the weekend. Equity markets, notably travel stocks, were quick to drop as a panic sell-off quickly impacted European stocks following the news.
Despite the attacks, risk-on investors seemed to have remained invested on possible expectations that an upcoming German cabinet vote on next year’s budget will remain accommodative to sustaining an economic recovery.
The volatility persistently present in the markets is anything but a justification to call any risky investment rational, especially equity stocks based on technical analysis, i.e forecasting a stock’s movement based on a statistical trend of historic prices and volumes, which ignoring a stock’s fundamental intrinsic value in such volatile times is the equivalent of a roulette wager on red or black. Having said that, in non-volatile times, technical analysis is a very useful investment tool, especially for the likes of high frequency traders on FX markets.
Markets were quick to recover losses last November, following the Paris attacks and were just as quick to revert back to normal levels yesterday as European stocks recovered to close relatively flat. The risk-on investor would indeed have ‘won his wager’ this time around, but this is no guarantee such a trend will or should persist following every terrorist attack, despite the known fact that investor’s usually panic sell.
Yesterday’s blasts may nonetheless adversely impact the economic recovery of the Eurozone and add further dismay to Europe’s already weak consumer confidence, further buoyed by yesterday’s German Economic sentiment data which came in substantially below expectations shortly after the attacks.
If political factors weren’t already a drag to a proper fiscal and monetary solution to stagnant Eurozone growth, upcoming general elections in the powerhouses of the Eurozone (Germany & France) in 2017 may undertake campaigns with anti-terrorism and national security high on the political agenda. With such a political shift on the horizon, in hand with the continued threat of a Brexit from the European Union, it is difficult to imagine a substantial recovery over the coming quarters.
This would leave the ECB to stand alone and exhaust the little capacity it has left to stimulate a frail economy, driven by fear, uncertainty and political bias. One thing is certain, volatility is here to stay and unless a radical shift away from traditional measures is taken by the ECB, the Eurozone may well suffer for an extended while until the economic cycle eventually reverts to growth.
Economic cycles are proven to fluctuate naturally between growth and recessionary periods, hence it’s not a question of If but When the Eurozone will recover. Though as the famous saying goes, we only live once and investors will very well want to see gains and a recovery sooner rather than later.
This article was issued by Mathieu Ganado, Junior Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.