Week in Review: Failed Turkish Coup Followed by Crackdown

For the week ended 22 July 2016

  • Turkish president leads crackdown after failed coup
  • European investor confidence dives after Brexit vote
  • Donald Trump nominated for president by GOP
  • IMF trims global growth outlook
  • UK economy slumps after Brexit

Global equities edged higher this week despite geopolitical events in Turkey. The market is preparing for the potential for looser monetary policy from the Bank of Japan next week and perhaps from the European Central Bank in September. Japan is mulling a large fiscal stimulus package to boost domestic demand. Oil prices slumped on the week, with West Texas Intermediate crude falling to $44.38 per barrel from $46.12 last week. Global Brent crude fell to $45.83 per barrel from $47.91 a week ago. The Chicago Board Options Exchange Volatility Index (VIX) was little changed at 12.62, up from 12.52 last week, while the yield on the US 10-year Treasury note remained unchanged at 1.58%.

GLOBAL ECONOMIC NEWS

In wake of failed coup, Erdogan tightens grip on power
Turkish president Recep Tayyip Erdogan declared a three-month state of emergency in the wake of a failed coup attempt last weekend. The declaration allows Erdogan and his cabinet to bypass parliament while enacting laws that the constitutional court will be unable to challenge. There could be restrictions on publications and freedom of assembly and broader powers of arrest, according to the BBC. Estimates vary, but as many as 60,000 people have been arrested or fired since the crackdown began early this week. Meanwhile, Standard & Poor’s downgraded Turkey’s sovereign debt rating this week to BB from BB+, citing the country's eroding institutional checks and balances.

Brexit sinks investor confidence
The ZEW investor confidence index dropped sharply in July, reflecting concerns that the United Kingdom’s decision to leave the European Union will weaken the European economy. The index slumped to -6.8 from 19.2 in June. That’s the lowest level since November 2012. This week, UK prime minister Theresa May made her first trip to the continent since taking office, meeting with German chancellor Angela Merkel and French President François Hollande. Hollande delivered a stark ultimatum: The UK must accept the free movement of people from the European Union or forget about access to the single market.

Trump accepts GOP nomination
Businessman Donald Trump accepted the Republican presidential nomination at the party’s convention in Cleveland. Trump will be joined on the ticket by Indiana governor Mike Pence, who was previously a member of Congress. The Democrats will nominate Hillary Clinton at their convention in Philadelphia next week.

IMF downgrades growth outlook
In an update to its World Economic Outlook, the International Monetary Fund trimmed 0.1% from its March forecasts for global gross domestic product growth. The IMF now expects the global economy to grow 3.1% this year and 3.4% next year, blaming uncertainty surrounding Brexit for the slower growth. On a separate note, France’s highest court ruled on Friday that IMF managing director Christine Lagarde must stand trial for negligence in a case stemming back to her time as the French finance minister.

UK PMI tumbles after Brexit
The flash reading of the July Markit composite purchasing managers’ index slumped sharply in the wake of the United Kingdom’s vote in late June to leave the European Union. The flash index tumbled to 47.7 in July from the 52.4 final reading in June. At that level, Markit chief economist Chris Williamson expects the UK economy to contract 0.4% in Q3.

GLOBAL CORPORATE NEWS

Japan’s SoftBank agrees to acquire Britain’s ARM Holdings
SoftBank, the Japanese technology company, agreed this week to acquire the UK’s largest technology company, ARM Holdings, a designer of microchips. The deal, worth an estimated $32 billion, is said to be a major bet on the growth of the Internet of Things (IoT).

Monsanto spurns latest Bayer offer
Agrichemical and seed company Monsanto rejected another offer from Germany’s Bayer to acquire the company. Monsanto, whose board unanimously rejected the deal, says the $65 billion offer undervalues the business and remains financially inadequate.

US regulators approve colossal beer merger . . .
The US Department of Justice approved the $107 million merger of AB InBev and SABMiller, the world’s two largest brewers. After receiving approvals from the EU, Australia and South Africa, the deal need only be approved by China to go through. Combined, the two firms will control approximately 30% of the global beer market.

. . . but move to block health insurance combinations
The US Justice Department sued to block two huge mergers in the health insurance industry. Anthem Incorporated's takeover of Cigna Corporation and Aetna’s planned acquisition of Humana Incorporated are being challenged in federal court on the grounds that the mergers would harm consumers and health care providers because of an unacceptable reduction in competition.

THE WEEK AHEAD

  • G20 officials meet in Chengdu, China on Saturday and Sunday, 23–24 July
  • The Federal Open Market Committee meets to set interest rates on Wednesday, 27 July
  • The Bank of Japan meets to set interest rates on Thursday and Friday, 28–29 July
  • Revised Q2 US gross domestic product figures are released on Friday, 29 July

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 One 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.

34791.29