A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Citi economist Mark Schofield’s recent reports have taken a distinct turn to the pessimistic despite a reasonably bullish outlook for the remainder of 2018. In his latest report entitled Seven (Deadly) Themes”, Mr. Schofield writes,
“This week, we highlight seven themes selected from our global economics and strategy teams that feature in our latest quarterly Global Strategy and Macro Theme Book: Emerging stagflation risk; asset purchases and growing market volatility; debt quality deterioration; risks to emerging markets; recent developments and the outlook for global trade; the future of Europe; and the Belt Road Initiative.”
Mr. Schofield pays most attention to stagflation risks, but Canada was mentioned specifically in the deteriorating debt section,
“While debt fundamentals continue to look good, they have yet to be tested… Some [countries], (including Canada, Australia and France) look vulnerable to higher rates… fundamentals continue to look relatively solid in many credit markets, good fundamentals at a mature point in the cycle are not unusual. It was no different before the GFC and yet default rates in credit markets subsequently spiked to more than 10%.”
“@SBarlow_ROB Schofield, "Seven (Deadly) Themes"” - (research excerpt) Twitter
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Turkey’s markets and currency are in full meltdown mode with the country’s equity market down more than 50 per cent in U.S. dollar terms in 2018. This would have worried me a lot more a few years ago when the MSCI Emerging markets index, once converted to Canadian dollars, showed a high degree of correlation with the S&P/TSX Composite index. As it stands, Goldman Sachs believes that Turkey’s problems will not spread elsewhere into other developing world markets,
“'From a fundamental standpoint further spillovers should be limited,' strategists including New York-based Zach Pandl wrote in the report. ‘To the extent that we continue to see spillovers to other markets with better fundamentals, those are the places we will look for opportunities rather than in the lira itself.’”
“Goldman Spillover Index Signals Lira Contagion Risk Limited” – Bloomberg
CNBC is a lot more alarmist, “Emerging market currencies hit multi-year lows as Turkish sell-off spreads “ – CNBC
“@SBarlow_ROB MXEF in CAD vs S&P/TSX Composite” – (chart) Twitter
“What went wrong for Turkey? Its economy is 'in the midst of a perfect storm'” – CNBC
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If market upheaval does spread through more emerging markets, energy investors should take note,
“@anasalhajji Oil Bulls: be careful! The decline in the currencies of the emerging economies is a serious threat for oil demand growth.” – (research excerpt) Twitter
“Oil steady as emerging market woes dim demand outlook” – Reuters
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Tweet of the Day:
Diversion: “Weird and wonderful visions of the future that never came to pass” – Quartz
Scott Barlow