August 19, 2016
Brexit Impact Not Yet Felt
A review of the week's top global economic and corporate news
Review of the week ended 19 August 2016
Global equities edged lower this week as the US Federal Reserve kept the door slightly ajar for a rate hike as early as September. The Chicago Board Options Exchange Volatility Index (VIX) was unchanged on the week at 11.8%, while the yield on the 10-year US Treasury note rose to 1.58% from 1.49% a week ago. On the oil front, West Texas Intermediate Crude rallied to $48.00 from $43.83 last Friday. Global Brent crude rose to $50.46 from $43.32.
UK data impress in wake of Brexit vote
Sentiment indicators have turned lower following the late-June vote by the United Kingdom to exit the European Union, but “hard” economic data such as the unemployment rate and retail sales have proven remarkably resilient. This week’s unemployment report showed that the jobless rate held steady at a low 4.9% last month. Better still, July retail sales had their best monthly performance in 14 years, rising 1.4% versus expectations of a 0.2% increase. Warm weather and a weak pound, which encouraged tourism, helped spur sales, according to analysts. Regarding Brexit timing, the government is said to be leaning toward triggering Article 50 of the Lisbon Treaty in April 2017, in advance of German and French elections later in the year.
But Brexit headwinds still have ECB worried
The minutes of the recent ECB meeting show that European central bankers are very concerned about headwinds to economic growth in the eurozone as a result of the UK’s vote to leave the EU. Downside risks have clearly increased and uncertainty has risen, according to the minutes. Expectations are growing for the ECB to add additional monetary stimulus in the months ahead.
Fed keeping options on the table
Members of the Federal Open Market Committee were split on the need for a hike in the federal funds rate soon, but they are keeping their options open, according to the minutes of their July meeting. A rate hike as soon as September can't be ruled out, but a December hike is seen as more likely, observers say.
US industrial production picked up in July
In July, output rose in all sectors — manufacturing, utilities and mining — according to the Fed. The 0.7% monthly advance was the largest since November 2014. A weaker US dollar and firmer commodity prices contributed to the improvement, economists said.
Turkey gave the EU an ultimatum this week: Approve visa-free travel within the EU for Turks by October or Turkey will shelve the deal struck with the EU to shelter waves of refugees from the Middle East. Meanwhile, tensions remain high between Turkey and the EU in the wake of last month’s attempted coup as the Turkish government continues to crack down on perceived adversaries while cozying up to Russia’s Putin.
Oil market switches from bear to bull
The market from Brent crude oil has shifted from a bear market to a bull market in just over two weeks. Prices have risen over 20% since August 2, with the latest surge tied to the possibility of an OPEC output cap being negotiated at long last. Brent crude ends the week above $50 for the first time since late June.
Spain hopes to finally form a government
After being politically paralyzed for eight months, Spain looks as though it is somewhat closer to finally cobbling together a government after Mariano Rajoy, caretaker prime minister and leader of the People’s Party, struck a deal with Albert Rivera of the Ciudadanos party. Rajoy will submit himself to a confidence vote later this month, which he will likely lose. However, he would be able to form a minority government if the socialist PSOE party abstains in a second vote, allowing Rajoy to take power.
Russia bolsters military presence along Ukraine border
Russia has massed tens of thousands of troops along its western border in new military installations. According to the Wall Street Journal, US and other allied officials believe Russia’s strategy is to provoke an overreaction from Kiev, one that would help undermine the case in Europe for sanctions against Russia.
Australia blocks takeover on national security grounds
The Australian government has blocked China’s State Grid Corporation and Cheung Kong Infrastructure Holdings from purchasing a majority stake in Ausgrid, the country’s largest electricity distributor, on national security grounds. China fired back, saying blocking the sale is protectionist and that it will impact the willingness of Chinese companies to invest in Australia.
Uber to launch driverless rides in Pittsburgh
Ride-sharing company Uber announced this week that it will roll out a test fleet of driverless Volvo SUVs in Pittsburgh in coming weeks. While the cars will be autonomous, there will be drivers to take control if the technology fails during the pilot phase.
Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon and tolerance for risk. Diversification does not guarantee a profit or protect against loss.
The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.
Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual or quarterly report. Full holdings are also available on the individual Fund Summary tab in the Products section of mfs.com.
Past performance is no guarantee of future results.
Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; NBCNews.com.
Issued in the United States by MFS Institutional Advisors, Inc. ("MFSI") and MFS Investment Management. Issued in Canada by MFS Investment Management Canada Limited. No securities commission or similar regulatory authority in Canada has reviewed this communication. Issued in the United Kingdom by MFS International (U.K.) Limited ("MIL UK"), a private limited company registered in England and Wales with the company number 03062718, and authorised and regulated in the conduct of investment business by the UK Financial Conduct Authority. MIL UK, an indirect subsidiary of MFS, has its registered office at 1 Carter Lane, London, EC4V 5ER and provides products and investment services to institutional investors globally. This material shall not be circulated or distributed to any person other than to professional investors (as permitted by local regulations) and should not be relied upon or distributed to persons where such reliance or distribution would be contrary to local regulation. Issued in Hong Kong by MFS International (Hong Kong) Limited ("MIL HK"), a private limited company licensed and regulated by the Hong Kong Securities and Futures Commission (the "SFC"). MIL HK is a wholly-owned, indirect subsidiary of Massachusetts Financial Services Company, a US based investment adviser and fund sponsor registered with the US Securities and Exchange Commission. MIL HK is approved to engage in dealing in securities and asset management regulated activities and may provide certain investment services to "professional investors" as defined in the Securities and Futures Ordinance ("SFO"). Issued in Singapore by MFS International Singapore Pte. Ltd., a private limited company registered in Singapore with the company number 201228809M, and further licensed and regulated by the Monetary Authority of Singapore. Issued in Latin America by MFS International Ltd. For investors in Australia: MFSI and MIL UK are exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 in respect of the financial services they provide. In Australia and New Zealand: MFSI is regulated by the US Securities & Exchange Commission under US laws and MIL UK is regulated by the UK Financial Conduct Authority under UK laws, which differ from Australian and New Zealand laws.
This content is directed at investment professionals only.