FIFA World Cup

We finish a week when central banks and monetary policy have dominated, where the rumblings of a not so phoney trade war continue and the soccer World Cup has started. A week that serves perfectly to highlight how different news stories/events and narratives can have different and varying impacts on markets. Understanding what is really driving a market can help determine what significance we should attach to each stream of news as it develops.

The theme that continues to underline this market remains global inflationary growth, the different positions countries or zones find themselves within that growth cycle and the extent to which central bank monetary policy or indeed tariffs can influence that position. The parallel with 1929 and 1987 remains striking: disinflationary growth, central bank tightening, burgeoning trade and budget deficits and escalating trade tension. All should or rather will continue to combine to produce the event of 2018. And it isn’t the World Cup. This week’s newsletter is perhaps a more lighthearted approach to another self-contained event: Russia 2018. It is hard to believe a sports event can affect markets at all. But the extent it influences market decision makers will determine any impact it has on price even though it is clear that effect will not be lasting. Again history and, in this instance, world cup history remains our guide.

Perhaps a good way of looking at the market during Russia 2018 is like a cake.

The colour of the icing does not really change the sustenance and flavour of the cake itself but its appearance might affect the mood or appetite of those who are going to eat it. And once the cake is eaten it will continue to energise the consumer yet the colour is long forgotten.

In a light-hearted manner we have applied our fractal methodology (overlaying current pricing on the average price during previous World Cups) to the national stock markets of the major teams, and produced the following chart

There have only been a couple of days of actual play so far, so we have included the ten days prior to the start of the tournament. Remarkably the Brazilian BOVESPA seems to be following the runner-up fractal. Brazil are the favourite team to win, according to most pundits, although EA Sports, who have ‘played’ all scheduled matches, predict that France will win. Note that the games company did this in 2010 and 2014 and in both cases correctly predicted the result, and you cannot help see that the French CAC40 current performance is quite close to the winner fractal. The FTSE 100 price/action, representing England, our own team here at Matrixtrade is even closer, although with a 17/1 bookmaker price, we are not taking this too seriously. The eight most favoured teams together with their betting odds are as follows

Note that history shows that all markets tend to go down during the World Cup, and volumes are reduced, although this may be the normal seasonal effect. It is notable in the various countries that volume drops off sharply when that country’s team are playing. That effect will be reduced this year as due to the location, many matches are played when European and Asian markets are closed.

We have also charted the market performance of the previous winners national stock markets during the period of the tournament that they won. The strong performance of the Spanish IBEX and weak performance of the BOVESPA in those years is reminiscent of this year’s activity.

Here’s to making the very best.

Good Luck

Ed Matts
Founder
Matrix Trade

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