Bloomberg
“First Argentina, Then Turkey, Brazil. Now South Africa Reels.”
Investors rattled by everything from trade wars to the end of central-bank stimulus are picking off the most vulnerable emerging markets one by one.
The rand weakened more than 2 percent on Friday, almost twice as much as any other major peer. That came hot on the heels of a slide in Brazil’s real that defied the best efforts of the central bank. Even the Turkish lira was buckling again, losing more than 1 percent, less than 24 hours after policy makers surprised investors with a greater-than-forecast interest-rate increase. Sovereign bonds retreated and the MSCI index of emerging-market stocks fell the most in more than three weeks.
South Africa was thrust into the epicenter of a sell-off gripping emerging markets as policy makers in Europe and the U.S. plan to pare back more than a decade of stimulus measures. Trade tensions are deepening ahead of the G-7 conference in Quebec, while some investors are avoiding riskier assets before Tuesday’s historic meeting between U.S. President Donald Trump and North Korean leader Kim Jong Un.
“Countries with large short-term external debt and current-account deficits are coming under bigger selling pressure,” said Tsutomu Soma, the general manager for fixed-income trading at SBI Securities Co. in Tokyo. “Investors seem to be shifting their funds from weaker emerging markets to U.S. assets now.”
Trade tensions are back in view as President Trump is set to find himself isolated at Quebec’s G-7 confab, where he’ll be challenged by other leaders on tariffs and the environment. The international conference will be followed by the summit between Trump and the North Korean leader scheduled on Tuesday in Singapore.
Reuters
“Goal! Investors line up World Cup winners off the pitch.”
The soccer World Cup is a massive money-spinner and stock market players are busy picking brewers, betting firms, pub chains and sportswear brands that will benefit from the associated global spending surge.
The world’s biggest sporting event is unlikely to make or break companies, but it gives them the chance to reach new customers and showcase new products, potentially locking in revenue streams beyond the end of the month-long tournament that kicks off next week in Russia. This year’s tournament will add $2.4 billion to the global advertising market, according to marketing agency Zenith.
“For brands, the World Cup offers a unique opportunity to reach these consumers at scale, during shared public occasions they are emotionally involved in,” said Jonathan Barnard, Zenith’s director of global intelligence. The tournament is expected to have a broadcast audience of 3.5 billion across the globe.
Investment banks are busy sending clients their World Cup research identifying which shares could win big. The tone is often light and some tips to be taken with a pinch of salt as they piggyback the marketing bonanza.
Brokers also know that investors will themselves be busy watching the games, keeping trading volumes light. Studies, including from the European Central Bank have shown that trading volumes drop significantly during World Cup matches with the biggest plunges just after goals and other key moments in a game.
Monthly volumes for Brazil’s benchmark Bovespa equities index reached a two-year low during the last World Cup in June 2014 according to Reuters data.
One certain bet is that beer will be drunk in large quantities to celebrate victories or drown sorrows.
Volumes of beer typically get a 2-3 percent boost in host countries during a World Cup year, Morgan Stanley analysts found looking at the four previous hosts. Carlsberg, the market leader in Russia and Budweiser maker ABInBev, a global sponsor, look to be among the winners from this tournament. ABInBev has said it expects the World Cup to boost annual sales volumes in finalists Brazil and Argentina by 0.5 to 1 percentage point, thanks to matches driving beer drinking in the normally drier winter months. “We think the best final to maximize the positive impact for ABInBev would be Brazil vs. Mexico,” Morgan Stanley analysts wrote.
BBC News
“G7: Trump says Russia should be part of summit.”
US President Donald Trump says he wants Russia to be part of the G7 group of key industrialised nations. Russia was expelled in 2014 following its annexation of Crimea, but Mr Trump said he wanted the country readmitted. The build-up to the meeting has seen major disagreements between the US president and other nations over his imposition of trade tariffs.
There are also likely to be disagreements with Mr Trump over Iran and climate change. The G7 summit, which groups Canada, the US, the UK, France, Italy, Japan and Germany, is being held in the town of La Malbaie in Quebec, Canada.
The leaders of the nations, which represent more than 60% of global net worth, meet annually. Economics tops the agenda, although the meetings now always branch off to cover major global issues.
Mr Trump said he regretted the meeting had shrunk in size, putting him at odds with most other G7 members on yet another issue. «You know, whether you like it or – and it may not be politically correct – but we have a world to run and in the G7, which used to be the G8, they threw Russia out. They should let Russia come back in,» he said.
He found support in the shape of the newly installed Italian Prime Minister Giuseppe Conte, who tweeted that it was «in the interests of everyone» for Russia to be readmitted. Canada though immediately said it remained opposed.
Russian President Vladimir Putin is currently in Beijing, where he was presented with a friendship medal by Chinese counterpart Xi Jinping.
It was mainly France and Canada v Donald Trump, sparked by Mr Trump’s imposition of steel and aluminium tariffs. Appearing alongside host leader Justin Trudeau, French President Emmanuel Macron said: «A trade war doesn’t spare anyone. It will start first of all to hurt US workers.» For his part Mr Trudeau described Mr Trump’s citing of national security to defend his steel and aluminium tariffs as «laughable». Never one to back down, Mr Trump fired off a series of tweets, keeping up the tirade on Friday.
Bloomberg
“Stocks Drop, Bonds Mixed as Emerging Assets Suffer: Markets Wrap.”
U.S. equities were mostly lower as global stocks lost momentum, with European shares drifting and Asian peers retreating. A slump in South Africa’s rand reminded investors of the continuing tumult in emerging markets.
The S&P 500 was little changed, while the Stoxx Europe 600 Index dropped after Chinese and Hong Kong shares had tumbled earlier. German bunds led advances in core European bonds, and the common currency weakened after four straight days of gains. Treasury 10-year yields fluctuated in a narrow range, and the dollar rose. Next up on the docket will be a potentially rocky summit of the G-7, where trade disputes are set to showcase a divide between the U.S. and longtime allies.
“Headline news, such as G-7, come to the fore, volatility accelerates and areas that have performed well — tech — come under selling pressure,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co, said in a message. “The selling pressure is not due to fundamental reasons but rather on the view that it is a short-term trade to raise cash in highly liquid names that can be easily re-purchased on the other side of newsmakers.”.
After appearing to regain some swagger this week, global markets are in risk-off mode again as old worries move to the forefront. Trade tensions are back in view, with President Donald Trump set to find himself isolated at Quebec’s G-7 confab as he’s challenged by other leaders on tariffs and the environment. Underwhelming data releases from France and Germany continued a run of poor economic news in the euro area, while growing cracks in the developing world are adding to concerns.
South Africa’s rand tumbled and bond yields soared as disappointing economic data this week persuaded traders that there’s no chance of a rate increase any time soon. Brazil’s central bank’s swap sale Thursday wasn’t enough to boost the real, and the country’s stock index slid 3 percent, while Argentina secured a $50 billion stand-by arrangement from the International Monetary Fund to help restore investor confidence.