Lasting Market Impacts Following The Paris Attacks

• Global markets have remained relatively stable in the aftermath of the Paris attacks.
• Citi believes that the lasting market impacts from the attack could stem from a ramp-up in anti-terrorist military action.
• Citi believes that commodity prices could also be negatively affected by the attacks.

While there hasn’t been much of a knee-jerk reaction to the Paris terrorist attack so far in global equity markets, Citi Research analysts believe that the attacks could have meaningful long-term political and economic impacts. Here’s a breakdown of what Citi has to say about the fallout from the attacks.

U.S. markets resilient
In the past, the U.S. markets have typically rebounded quickly following geopolitical events that happen outside the U.S. “In a strange way, the world has become far too complacent about these kinds of calamities amidst other major risks,” analyst Tobias Levkovich explains.

Lasting impact
Aside from any short-term jitters in global markets, Levkovich sees the potential for retaliatory moves against Isis to pressure commodity prices as the dollar strengthens against the Euro. A ramp up in military action against Isis would likely be bullish for defense stocks and bearish for energy and materials stocks.

Risk on the rise
Citi analyst Tina Fordham believes that the risk of further attacks by Isis has also grown. “With this in mind, we have upgraded the risk of terrorist attacks not only in the Middle East but also in the West, as well as the likelihood of increased international military intervention in IS strongholds in Syria, Iraq and Libya,” she explains.

Traders who want to trade the possibility of a military ramp-up should consider the PowerShares Aerospace & Defense (ETF) PPA. The PPA is up more than 5.3 percent in the past month.

Disclosure: the author holds no position in the stocks mentioned.