The City of London may be fixated on gilt yields and the Bank of England's next move, but last night's events in France served as a brutal reminder that geopolitical risk remains a wildcard for investors. Hundreds arrested, dozens of British police officers injured, and a Champions League final descending into chaos. The headlines are dramatic, but the market reaction has been characteristically indifferent.
Why? Because the bottom line has not yet been affected. Capital is still flowing, the pound is stable, and the FTSE 100 opened flat this morning.
Yet, as any seasoned observer knows, these flashpoints have a habit of escalating into broader economic consequences. The French government will now face pressure to explain how it allowed security to break down so spectacularly. For the UK, the injury to its police force will strain diplomatic relations at a time when post-Brexit tensions are already simmering.
But until we see evidence of a sustained hit to consumer confidence or a spike in insurance claims, the markets will remain unfazed. After all, in the world of finance, sentiment is king, and sentiment is still priced for optimism. The real test will come if this triggers a broader debate about stadium security, travel advisories, and the cost of policing major events.
That is when the Treasury starts taking notes. For now, the bottom line holds. But the risk premium just went up a notch.
