(Bloomberg) -- The pattern has become familiar to European equity traders -- a horrible terror attack on their city streets dominates headlines and the collective concern of citizens. Markets prove resilient.
On Friday, however, European stocks followed U.S. peers lower. Travel and leisure stocks dropped as much as 1.6 percent after a van rammed through one of Europe’s most popular tourist destinations Thursday.
What’s worsening investor sentiment this time around is that the Barcelona attacks happened against the backdrop of growing concern over U.S. President Donald Trump’s administration. Global markets were riled -- falling below last week’s low after his “fire and fury” warning to North Korea -- amid rumors that Trump’s key economic adviser was about to quit. Just as that was denied, reports of the attack further rattled skittish investors.
“The negative reaction from this morning is 90 percent what’s happening with the U.S. administration and the chaos there. All the business plans markets were hoping for are practically off the table. Trump is losing more and more support from his own party,” Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany, said by phone. “As sad as it sounds, markets have grown more and more resilient to terror events.”
Financial-market reactions to terror have proven increasingly short-lived. Past incidents, such as Madrid’s train bombings in March 2004 and London blasts in July 2005, had spurred declines in equities that were erased days or weeks later. Recoveries have been swifter in recent years. Following June’s weekend attack on London Bridge, the FTSE 100 Index fell just 0.3 percent, while Sweden’s OMX Stockholm 30 Index closed 0.4 percent higher after an attack in April.
Whether that recent history will repeat itself in the days ahead may depend as much on whether or not Trump can restore faith in the so-called Trump trade, said Michael Hewson, an analyst at CMC Markets in London.
The CBOE Volatility Index on Thursday shot up 32 percent, nearing the high it reached last week after the “fire and fury” remarks escalated a standoff with North Korea. A gauge of euro-area stock swings on Friday climbed as much as 20 percent. The Stoxx 600 has fallen 5.6 percent since a peak in mid-May, weighed down by a stronger euro and geopolitical tensions between U.S. and North Korea last week.
“In Europe, we’ve been trending lower since June, and the sharp decline in U.S. markets has exacerbated the move,” said Hewson by phone. “We’ve had concerns about North Korea, concerns about the Trump presidency -- and now on top of that, we have this terror attack, which obviously doesn’t help market sentiment.”