The Week Ahead: Eurozone Crisis Moves to Spain, China Threatens, Russia Digging For Gold

Stock Market Roundup

Eurozone Crisis Focus Moves to Spain as Catalonia Demands Independence from New PM

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One festering Eurozone sore gets some antibiotic cream in Italy while another abscess needs lancing in Spain. The new Spanish Prime Minister in town, a socialist former economics professor named Pedro Sanchez, happened to be sworn in the very same day that a new secessionist local government was sworn in in Barcelona, Catalonia. The fact that Sanchez gets to sit in the biggest chair in the Iberian peninsula is thanks to the Catalan parties that now want independence from his regime, so he’s in a spicy pickle or two. Sanchez controls only 85 seats out of 350 and needs support from the Catalans to survive politically. Catalonia’s secession from Spain could tip the Eurozone sovereign debt crisis over, as Spain would no longer have Catalonia’s tax revenues to pay its bills.

What to do: If Catalonia declares independence from Spain again, Sanchez will not have the power to invade as former PM Rajoy did. If Catalonia makes a move, time to sell the Euro and Eurozone stocks. (BATS:EZU) (NYSEARCA:EUO)

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FDA Commissioner Gottlieb Wants Faster Approvals, Shorter Monopolies

Scott Gottlieb, FDA Commissioner, has been outspoken lately regarding his opinion of sky high drug list prices. Earlier this year he railed against rebates, calling them “kickbacks” and that they should be made illegal. Instead of issuing rebates to payers, said Gottlieb, drug companies should simply lower their list prices. Now, Gottlieb wants to try to lower drug prices by shortening the time of exclusivity of new drugs to market. His goal is to get 2nd and 3rd drugs to market faster and to increase the incentives companies have to be the 2nd or 3rd and so on to market.

“They’re going to have a monopoly, but that monopoly shouldn’t last forever,” he said. “The days of being the 12th statin are over,” he said. “You literally see companies pulling out if they think they are going to be fourth and fifth drug on the market. Companies aren’t chasing those opportunities.”

What to do: Shortening the time of exclusivity without also lowering the regulatory burden of approval could discourage companies from attempting to develop new drugs, as the costs of development will remain the same but the returns will shrink. This could have a disproportionately negative affect on new biotech companies. Since Gottlieb wants to increase approvals for generics though, generic giants like Teva (NYSE:TEVA) could benefit.

Republicans to Google: Don’t Call us Nazis Or We’ll Have a Stern Word With You

Republicans in California are upset at Google parent Alphabet Inc. (NASDAQ:GOOGL) for listing Nazism as a core ideology of the Republican Party, and this right before the state’s primary elections. Also listed among California Republican ideologies is market liberalism, which flies in the face of Representative David Nunes’s (R) threat to “rein in” Google as a monopoly, but only if it says things that he doesn’t like, such as naming Nazism an ideology of his party. In his criticism, he suggested that if Google fixes these sorts of mistakes, then it is not a monopoly and he would leave it alone. “…[a]re these companies – Facebook, Twitter, Google, Apple, etc. – are they monopolies and should they be reined in? I would hope we don’t have to go there,” he said.

What do do: It looks like the big tech giants are going to eventually be “reined in” because both parties are upset at them for different reasons. Discussions about forcibly breaking up Facebook (NASDAQ:FB), Google, or Apple (NASDAQ:AAPL) are not new. There is no imminent danger of politicians acting on this just yet, but it is something to be monitored.

China to Trump: Place Tariffs On Us and All Bets Are Off

In a carefully worded threat to the Trump Administration over the weekend, Reuters reports Chinese authorities said the following: “If the United States introduces trade sanctions including raising tariffs, all the economic and trade achievements negotiated by the two parties will be void.” It is unclear if any progress has been made yet anyway, and tariffs have already gone into effect as of last week. If China wants to shoot the next shot in this embroiling trade war, the ball is now in their court.

China’s vice Premier, Liu He, is a Harvard economist, and chief negotiator with Commerce Secretary Wilbur Ross, a fierce protectionist.

What to do: The news changes on the China Trade War almost every day, but the fact is tariffs are already in place. Prepare for consumer prices to heat up in the US due to more expensive Chinese imports. The trade war will be bad for many companies, especially retailers, (NYSEARCA:XRT) and will cause retaliatory tariffs against US exporters.

Russia Digging For Gold Double Time

According to RT, Russia is getting serious about stockpiling gold, considering US dollar sanctions against it and other economic warfare measures launched against them by the United States. It is unclear if this is just an ambitious projection or if Russian gold miners can actually accomplish this, but state officials who run state-run gold miners are reportedly saying that new deposits have been found that will allow Russia to ramp up gold production. Gold (NYSEARCA:GLD) is hovering just below $1,300 now but is expected to climb by the end of the year. Mining stocks (NYSEARCA:GDX) have been outperforming the metal since gold’s correction from $1,370 in April.




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