Traders will be watching market action this morning to assess what the impact of the terrorist attacks will have on investor sentiment. This will need to be unravelled from what was going to be a weak opening in any event. Market sentiment this morning will also be negatively impacted by lower US and European markets as well as a sagging oil price.
Investors may be reluctant to get too defensive in response to the weekend terrorist attacks at this stage. Ultimately there will need to be evidence of an enduring blow to consumer or business sentiment, or signs of a significant and costly escalation in the West’s response, to have a lasting impact on the investment climate. The weekend attacks certainly create uncertainty for markets but to some extent investors have already assumed the terrorist threat is an ongoing part of the current economic and risk background. Investors are also aware that any major increase in market volatility could lead to a response from central banks, including a delay in the Fed’s December rate hike.
Another slide in the oil price on Friday will be a concern for investors in the energy sector. The cuts to US production seen so far have not been enough to bring the market back to balance. Even though further cuts in US production are expected, it may yet be some time before the oil market approaches balance if Iranian production comes back to the international market.