Advertisers Boycott Facebook & USD/CAD

MARKETS

It will be a tentative start to the new week, which is shortened in the United States for the July 4th holiday on Friday. Fears over rising global coronavirus cases saw shares drop sharply in Europe and on Wall Street on Friday, so Asia may have some catching down on Monday. The Dow Jones dropped 700 points on the day, while the S&P 500 fell -2.4%, leading a second weekly loss in three for US indices.

The US dollar, US Treasuries and gold benefitted from a flight to safety, while the British pound sank to its lowest level since May. US 5-year yields fell to a record low. A rise in cases in Australia has also seen the Aussie and Kiwi dollar pullback.

GURUS

"What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower.”- William O’Neil

Rising Cases

There have now been more than 10 million cases of coronavirus reported worldwide, 25% of which were in the United States. Optimism for the reopening of the global economy have seen share prices rise sharply since March, but now investors are being forced to reassess their bullishness. One trigger for the late Friday sell-off was the rollback of the reopening in Texas, where the governor ordered the closure of bars, having only recently reopened them. 

While the assumption remains that countries will not order full lockdowns again because of the economic damage they cause, the downside in markets might be limited. However, because US share prices especially rose so far so quickly, there is a risk that markets crash again under their own weight, if it appears a V-shaped economic recovery is not possible amid the rising cases.

Facebook Boycott

Major companies are lending support to a boycott campaign against major social networks including Facebook and Twitter. Big social media advertisers including Unilever and Verizon have joined the campaign by stopping social media spending in the United States, while Coca-Cola did not join, but has paused all US social media advertising in sympathy. The “Stop Profit for Hate” campaign is in response to the George Floyd killing.

Facebook and other social media shares could come under pressure if investors believe the campaign could take hold and potentially cost the networks major ad revenue. For now it is US-orientated but an expansion to foreign companies or the overseas ad spend of US companies would be a worrisome escalation for shareholders.