The markets are unsettled this morning, but the cause is not a flash crash or a sovereign debt scare. It is a tragedy of a different order: a shooting at a mother-child centre in Germany that has left six dead. As the City sips its first coffee, our counter-terrorism experts are already in contact with their German counterparts.
The Bundespolizei are treating this as a terrorist incident, though the motive remains unclear. Let me be clear: this is not a normal event. The location alone a mother-child centre suggests a deliberate targeting of the vulnerable.
The capital markets are pricing in a risk premium on European security assets, with German bunds seeing a slight bid as investors seek safety. But the real money is not in the spreads. It is in the implications for domestic security spending.
The fiscal hawks in Berlin will be watching. This will inevitably reignite the debate on gun control and surveillance. From a financial perspective, the volatility index V2X is up 4 points.
The insurance sector will be hit, particularly re-insurers exposed to terrorism clauses. The pound is holding steady against the euro, but I expect the Home Office to issue a statement this afternoon. The British counter-terror network is on standby.
They will be analysing every scrap of data. The question is whether this is a lone wolf or something more organised. The market hates uncertainty.
We will see a flight to quality today. Gold is up $15. The DAX is down 0.
8%. The Footsie is off 0.3%.
The real story, however, is the human cost. Six lives. But from a fiscal standpoint, the cost of security will rise.
The government will be under pressure to increase funding for police and intelligence. That means higher borrowing or higher taxes. Neither is welcome.
Gilt yields are edging up. The Bank of England will be watching. This is a day for careful analysis, not panic.
The markets will correct. The tragedy will remain.
