More than €2bn (£1.4bn) was wiped off shares in European travel and hotel companies , as investors focused on concerns that the Paris attacks will hit tourism and consumer confidence across the continent.
Shares in airline Air France-KLM, travel company Thomas Cook and their sector peers were down sharply on Monday, over fears the attacks and the prospect of tighter border controls would deter shoppers and holidaymakers from visiting Paris and other European cities.
In Paris, Air France shares fell almost 6% and hotel company Accor lost 4.7%, while London-listed Thomas Cook sold off 4.8%. In total, €2.3bn was knocked off the value of travel and leisure shares as measured by the Stoxx Europe 600 Travel & Leisure Index.
As the European Central Bank expressed fears that the attacks might affect consumer spending, luxury brands also came under pressure from worries that Paris boutiques would see a drop off in visits from rich foreigners.
There were stock market losses for Christian Dior, Hermes International and LVMH, home of Louis Vuitton and jeweller Bulgari.
“Paris is one of the most important cities worldwide in terms of luxury spending, and the timing is not good too – a few weeks before Christmas, the most important period for retailers,” said Gregoire Laverne, fund manager at Roche Brune Asset Management.
However, European stock market indices shrugged off early losses on the belief that, tourism and shopping trips aside, the wider economic impact from Friday’s events would not be severe.
Economists at Citi investment bank said the attacks could hurt consumer confidence and tourism, but it was too soon to discern the scale of the impact across Europe.
“Tourism and travel services are the sectors is where we would expect to see the largest adverse impact, with some substitution effects towards other destinations, perhaps elsewhere in France away from Paris, but more likely benefiting other European capitals, unless the phenomenon were to spread to other countries,” they wrote in a research note.
Beyond tourism-related stocks, the market impact was limited and some stocks even rose. Defence companies moved higher amid a step up in military activity in Syria. London’s FTSE 100 closed up 0.5%, Germany’s Dax edged up 0.05% and France’s Cac index was only down less than 0.1%.
There was a boost to shares from a growing view in markets that the ECB will step up its support for the bloc’s economy as a result of the attacks. There was even market chatter that the US Federal Reserve could hold off raising interest rates there in December, contrary to firm signals that an increase is imminent.
The US central bank had guided similarly about a September move, only to leave policy unchanged, blaming China’s downturn.
In the eurozone, the ECB hinted at concerns the attacks could knock consumer spending, which has been the main driver in the bloc’s protracted and fragile recovery.
The ECB’s chief economist said policymakers would be watching the next consumer confidence figures closely, after the Paris attacks.
“Usually these sorts of events have a transitory effect on the economy so this is not a priori a reason to change the way we see the evolution of the European economy,” Peter Praet told Bloomberg Television.
“It’s also true on the other hand that we have a fragile cyclical recovery, fragile with downside risk, and it’s clear these sort of events do not help restoring confidence in the recovery, so this is something we will watch.”
The ECB has been propping up the recovery with ultra-low borrowing costs, alongside printing money in a massive quantitative easing (QE) programme.
Even before the attacks, expectations had been building that the ECB would use its next policy meeting in December to unveil further support. Praet’s comments bolstered that view.
“While the precise nature of next month’s policy decision might previously have been still in the balance, after Friday evening’s events in Paris we suspect that the ECB will now want to pull out all the stops in its easing, with a rate cut and extra QE now more likely to be on the cards,” said economists Chris Scicluna and Mantas Vanagas at Daiwa Capital Markets.
