ANOTHER DAY, another terror threat? To judge by the muted reaction of the financial markets to the foiling of the Atlantic bombing plot, business is capable of taking shocks such as the ones delivered yesterday in its stride.

Some specific stocks, notably airlines and tour operators, felt immediate pressure, and they may feel more strain in the coming days. But if the worst the investment markets have to deal with is a single-digit percentage decline in the price of shares in British Airways, commercial concerns can be put to one side.

While BA profits may easily suffer to the tune of £10 million for every day of disruption, the net overall impact on investment markets will be diffused. The FTSE 100 showed only mild signs of strain yesterday: a session fall of 37 points is equivalent to a mere 0.6 per cent. Moreover, what is lost on the swings may be gained on the roundabouts. The oil price may weaken if demand for hydrocarbons declines as air travel is shunned. But cheaper energy will do more good than harm.

Insurance premium rates may harden, thanks to the grave reminder of risks sent by the security alerts. That will add to business overheads and may take money out of consumers’ purses. But it may also reduce the volatility of insurance pricing and if it improves the chances that insurance is correctly and sustainably priced over the longer term, the greater good will be served.

Sterling fell yesterday in reaction to the renewed terror threat. But exporters, a group including hard-pressed UK manufacturers, will cheer the fact that it will cost overseas customers less to acquire the pounds they need to buy British goods and services.

The muted reaction to news of the plot suggests that terror risk may already be priced into asset valuations. In addition, the market is showing faith in the security services’ capacity to thwart terrorism. It may also indicate that the market thinks the economic impact of a terror outrage will be contained.

The really big commercial risk here may be that people’s behaviour is altered. Change may come so subtly and sub-consciously that it is hard to see, let alone measure. People may stop travelling, for example, not because they are scared of being blown up but because they tire of complying with necessary security measures.

Transportation companies will suffer if people stop interacting. There will be a bigger problem if trading activity in general is impeded.

Vodafone razor in good hands

WILLIAM of Ockham is not thought to have used a trendy mobile phone. But he would have had no difficulty applying his own razor principle to the complexities of Germany’s telecoms market and reaching a simple proposition: cut-throat competition is bound to slash prices and shave gross margins.

That is not in itself news for Vodafone, but the internal difficulties of Deutsche Telekom, its premium price rival there, will now accelerate that inevitable process. For Vodafone, Germany is now second only to the US and the market there has changed fundamentally since it bought Mannesmann in 2000.

Effective new strategies are needed to cope with these changes and the likelihood of similar trends in other markets, so that Vodafone can stop being vulnerable to competition and use its cashflow for new developments. But there is nothing that Vodafone or Arun Sarin, its battle-scarred chief executive, can do to bring back the good old days of rapid growth at lathered-up prices.

By the same simple logic, fund managers who are sitting on losses on their Vodafone shares cannot kid themselves that the group might, under different management, still be worth what its share price suggested in the heady days of telecoms heaven. The share price does not prove that Mr Sarin is doing a bad job.

Instead of carping, as if only Mr Sarin were to blame for the sagging share price, City investors should back Sir John Bond, Vodafone’s new chairman. Sir John was put in because he understands strategy and performance. He can be trusted to decide, in good time, if Mr Sarin is the right man for the job.

Debtor nation

AMERICA’S monthly trade deficit edged down to $64.8 billion in June, but the world’s biggest economic imbalance is headed for an annual record. In the first six months Americans imported $384 billion more than they exported. With oil near peak prices, that gap is unlikely to close fast. The US still seems confident that it will be financed by foreign investors. For 2006 as a whole, however, the US deficit on trade will approximate the combined GDP of the Netherlands and Poland. Exchange rates must eventually change.

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