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Another Depressing News Week

| July 25, 2016
MPCA Weekly Market Update

Global equities edged higher this week despite another onslaught of horrific news, this time in Turkey and Germany. 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. Market participants are left to wonder whether global markets can stand on their own two feet without liquidity injections from central banks.

The nation of Germany mourned a week of four shocking attacks that left ten people dead, including schoolchildren, and many more wounded. Meanwhile, in Turkey, 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. The word “dictatorship” has been tossed around as an apt descriptor. 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.

In Europe, the ZEW investor confidence index dropped sharply in July, reflecting concerns that the “Brexit” decision to leave the European Union will weaken the European economy. The index slumped to -6.8 from 19.2 in June, the lowest level since November 2012. Interestingly, the U.K.’s national stock market index, the FTSE 100, trades over 2% higher than its pre-Brexit level.

Once again, in an update to its World Economic Outlook, the International Monetary Fund trimmed 0.1% from its March forecasts of 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.

Even in a sad week, growth initiatives march on. 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). We long for the day when such successes can be celebrated without the depressing backdrop of senseless murder and mayhem.