Risk off

Sober restraint
Financial markets participants are as horrified as the rest of the civilised world about the mindless carnage wrought by terrorists on Friday evening. Also in common with other people, investors have resisted any temptation to react hysterically. Caution is, however, more evident this morning.

There has been, and will be, damage to assets which could directly be affected by the events in Paris, such as tourism firms and airlines. And on a broader front investors are, unsurprisingly, inclined to lean away from risk and towards safety. That is likely to mean downward pressure on equity markets which were already looking soggy at the end of last week.

In currency terms that "risk-off" attitude means a stronger yen this morning and a weaker South African rand. The former is the strongest performer since Friday morning, up by 0.2% against sterling, and the latter's -0.8% decline puts it at the back of the field. The Swiss franc has not benefited from the flight to safety: both it and the euro are down by -0.6% while the US dollar is unchanged against the pound. 

Pound performs
Sterling's resilience - it shares second place with the US dollar behind the yen - has much to do with the mostly limp economic data coming out of Euroland and the United States on Friday and from Japan this morning. Notably, Japanese gross domestic product data showed the country falling back into recession.

The yen was protected both by a lack of surprise at negative Japanese growth in the third quarter and by the greater immediate need for safety. There was no such balancing factor for the euro in the wake of Euroland's own disappointing GDP figures, which showed quarterly and annual growth of 0.3% and 1.6%. 

In the States it was a lacklustre 0.1% monthly increase in retail sales and a complete set of producer price index readings which all fell short of forecast. There was respite for the dollar later though, when the University of Michigan consumer sentiment index exceeded expectations by a point and a half, coming in at a provisional 93.1.

Longer-term effects
Inevitably, the talking heads will be debating today what the events of Friday - and their possible repetition elsewhere - will have on central bank policy around the world. In particular there will be speculation about a postponement of the Fed rate increase pencilled in for December.

It will be a pointless exercise: If analysts cannot anticipate monetary decisions even in normal times, they are unlikely to be able to do so with any greater accuracy today. But that will not hold them back.

Investors will pay whatever attention they can spare to the few ecostats on today's agenda. The only data with any chance of catching their eye will be the euro zone consumer price index figures at ten, which are expected to show inflation unchanged at zero. The European Central Bank president will be speaking in Madrid at quarter past ten.