By Peter Goodall | August 13, 2018
World markets ended the week slightly down as early gains were offset by concerns over Turkish contagion. The S&P 500 ended the week down -0.18% while the MSCI World Index lost -0.64%.
Tesla In Hot Water Again
On August 7th, Elon Musk tweeted “Am considering taking Tesla private at $420. Funding secured.” The company gained approximately 4.74% in market value on the news. It is worth noting that the company ended the day up about 11% but this coincides with news of a Saudi Arabian sovereign wealth fund taking a 3-5% stake in the company which coincides with gains earlier in the day. Gains from the tweet have since evaporated and the SEC is inquiring why Musk made the disclosure on Twitter. The stock continued its rout on Friday following reports the company was seeking wider investor pool to take the company private.
On 08/13/18, Musk posted an explanation through a blog on his website. You can access it here. It is unclear whether this will satisfy the SEC.
Since August 8th, the Turkish Lira has lost approximately 19% of its value relative to the US Dollar. This is causing increased strain on its ability to repay US-denominated debt. The recent currency devaluation has caused a resurgence in fears that the Turkish crisis may spill over to other firms and countries. Challenges are compounded by the tensions with the US, who are threatening to double tariffs as an effort to pressure the release of a pastor imprisoned two years ago for allegedly being a spy.
The US doubling down on tariffs will likely continue to strain relations with Turkey, a long-standing US ally. Challenges to the relationship predate the current administration.
Exposure to Turkey is limited for now with a few companies having increased stakes in it. We currently have no direct exposure to Turkey at LOM. For a primer on Turkey, check out our May 24th market write up.
US Core CPI grew faster than expected, at 2.4%. Increasing the likelihood that the Fed will perform a rate hike in September.
Saudi-Canada Diplomatic Crisis
Public criticism of Saudi Arabia’s human rights record by the Canadian foreign minister triggered backlash this week. The Saudi nation has expelled the Canadian ambassador, suspended flights to Canada, halted trade and investment deals and terminated the student exchange program. The sanctions triggered a small selloff in the Canadian markets, which dropped roughly 2.5% on the news Tuesday.
Heading into the coming week, we are looking at more financial uncertainty as Turkey takes center stage. We are continuing to monitor the situation. For now, our overall exposure appears to be low. The financial markets appear to be concerned about the risk of this taking down other institutions. Preliminary indications suggest this is primarily limited to a few European banks. Other institutions, like Blackrock, may have some exposure but it represents a small percentage of their overall assets.