Private Client Group

May 1st, 2017

Don’t Miss This European Economic and Political Briefing

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The future for big box retailers does not look promising while the Brexit gets messy and threats to end NAFTA take a turn. How could these stories affect your investments? Get all the details in this edition of Steady Investor’s Week…

European Economic and Political Briefing – on the economic front, Europe has been surprisingly strong in spite of tail Brexit concerns and elections in the Netherlands and France. Politics may be messy, but business is good. According to research firm IHS Markit, business activity in the eurozone reached a six-year high in April – the flash composite PMI hit a very solid 56.7, up three basis points from March. A reading above 50 marks improvement/expansion, so the case can be made that Europe is on firm footing. Perhaps the biggest near-term risk to growth, besides Brexit negotiations, is France’s upcoming May 7 runoff election. In the first round of elections held last week, centrist pro-euro candidate Emmanuel Macron and far-right National Front candidate Marine Le Pen advanced to the final round, having gained 23.75% of the vote vs. 21.53%, respectively. It was one of the tightest contests in a decade, and all eyes now are on the May 7 outcome. A victory for Marine Le Pen could compromise France’s membership in the European Union, and the European Union at large. In our view, it would be a major negative for the European economy and perhaps the global equities markets as well.

Brexit Gets Messy – we suspected Brexit would be messy, but the extent of the damage could also be quite expensive and unfavorable. Initial exit documents reveal that Britain will likely have to pay off its obligations to the European Union for several years after they leave. The conditions outlined so far also appear to much favor the EU over Britain. Signs indicate that the U.K. could remain subject to EU courts during the Brexit transition period, with rules enforced by the European Court of Justice. This is not likely to play into Britain’s favor. The financial industry is also getting involved in the debate, recently warning that it may be left with no choice but to start shifting jobs from London into mainland Europe where the free trade agreement is in place. Deutsche Bank indicated that some 4,000 jobs could be moved elsewhere in the EU, while Barclays CEO Jess Staley said the company would likely initiate relocation plans within six months of Brexit.

Are American Retailers Doomed? The era of the big box store and brick-and-mortar stores attracting in-person customers is in decline – major decline. Stores are closing at a record pace, with 2,880 retail closing announcements this year so far, which is more than double the amount of store closures from this time in 2016. The reason behind the exodus is fairly clear, with online shopping and convenience taking a major step ahead in how consumers shop and make decisions. Though some major department stores are closing up, like Macy’s, many still have a thriving online presence. Those stores that manage to make the rapid shift to e-commerce will be the survivors.

Threats to End NAFTA Heat Up, Then Cool Down – reports early in the week suggested that the Trump Administration was gearing up to submit an executive order to start the process of removing the U.S. from NAFTA. But, that all changed by the end of the week when on Thursday President Trump agreed not to terminate NAFTA “at this time.” Is the negotiator-in-chief using rhetoric to keep trading partners Canada and Mexico on their toes? Is it all part of a broader plan? No one can say for sure. President Trump does seem intent on changing the rules of the game, as the administration has taken a first step toward imposing a 20% tariff on Canadian softwood timber – the type of wood used for residential home construction. If applied, about $5B of Canadian exports to the U.S. will be subject to the tax. There are many steps yet to impose the tariff, but Canadian Prime Minister Justin Trudeau was less than pleased about it. In a phone to President Trump, he rejected “the baseless allegations” that Canada was taking unfair advantage of the trade deal.

From threats to end NAFTA to messy negotiations surrounding the Brexit, we are reminded this week how important it is to stay focused on key factors instead of getting caught up in headlines. Many times, investors can give more weight to news stories as opposed to economic indicators. To help you keep an eye on important fundamentals that could impact your investments, we invite you to download our Stock Market Outlook report. Click on the link below to download your free copy today:

Disclosure

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
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