Global markets continued to slide to the downside on, you guessed it, concerns over the economic future of Europe. As well, in-line earnings from MercadoLibre saw one of the darlings of emerging markets drop precipitously.
Public officials across Europe voiced their doubts about whether Greece (GREK, quote) would be able to stay in the Euro. German Finance Minister Wolfgang Schaeuble indicated that Greece’s decision was its own to make. With the surprise results of the far-left Syriza party, Greece’s future in the euro (FXE, quote) remains uncertain. Greece may hold a referendum soon to allow its people decide whether or not to stay in the euro zone. Given Greece’s current untenable situation and recent political results, an exit may appeal to the Greek people. Whether contagion from a Greek exit devastates the European economy is contingent upon the ability of European leaders to insulate potentially problematic economies like Spain (EWP, quote), Portugal, and Italy (EWI, quote).
In this interesting piece, O’Brien wonders if Hollande will be able to have an FDR-esque tenure in office as French President. In order to do so, he’ll have to convince Germany’s Bundesbank and the ECB to change tack, allowing for more more growth and less austerity, even if it means a rate of inflation higher than the mandated 3%. However, while Hollande’s dismissal of orthodox fiscal policy may alleviate pressure on the euro, his 75% tax rate on earnings over €1 million and professed desire to backtrack on labor reform could impair the French economy (EWQ, quote).
Although MercadoLibre (MELI, quote) reported a decent quarter, the stock fell 13% in New York trading today. Earnings per share were in-line with analysts estimates at $0.45 a share, but revenues missed slightly at $83.7 million versus a projected $84.6 million. EPS and revenues for this quarter represent a 36% and 38% increase year-over-year. As well, net margins improved. All in all, it wasn’t a bad quarter from MercadoLibre; however, today’s slight miss has forced traders to reconsider paying such a high multiple for shares in the company.
In a promotional flight attempting to entice emerging market airline operators to embrace Russia’s newest regional jet offering, a Sukhoi SuperJet has been lost somewhere over West Java. In addition to being devastating for friends and family of those on-board, the incident raises serious questions about the Sukhoi SuperJet. Crashes early in the life of an aircraft can have considerable ramifications on the long-term viability of the model; McDonnell-Douglas’s DC-10 sales never recovered from crashes early on in its operation. While this does not bode well for the Sukhoi Superjet, and at the risk of sounding callous, it does reinforce Embraer’s (ERJ, quote) prime position as the provider of regional jets to the emerging world.
The Brazilian real touched a three-year low against the dollar this week after the Brazilian government has actively tried to weaken the currency by lowering interest rates and lowering the mandatory rate paid out by savings accounts in order to make the country’s exports more attractive. While this victory may help Brazilian manufacturers in the short-term, such aggressive policy could have very real inflationary consequences. For Brazil (EWZ, quote), another round of reforms that ameliorate the country’s competitiveness, eliminating government meddling in business, and improve its low investment rate is necessary to ensure that devastating inflation does not accompany a lowering of interest rates. With President Dilma Rousseff in charge, this remains unlikely.
Disclosure: Author is short EWQ