Global shares muted as prospect of US cut fades

Global markets were low following the prospect of rate cuts by the US Federal Reserve dampened on Monday, after better than expected US job growth. (AP)
Updated 09 July 2019

Global shares muted as prospect of US cut fades

  • American and Chinese representatives to hold fresh round of trade talks in coming weeks

LONDON: Global stocks were in a muted mood on Monday after strong US job gains tempered expectations the Federal Reserve will deliver a large rate cut, while Deutsche Bank shares fell after a major restructuring.

Sentiment was dampened by US investment bank Morgan Stanley’s decision to reduce its exposure to global equities due to misgivings about the ability of policy easing to offset weaker economic data.

In Turkey, the lira, stocks and government dollar bonds weakened after President Recep Tayyip Erdogan dismissed the central bank governor, fueling fears about monetary policy independence.

European stocks moved little, with the pan-European STOXX 600 index adding 0.04 percent.

Top movers on the STOXX 600 included TGS Nopec, up 6.7 percent on an earnings update. US futures pointed to a lower opening for Wall Street, with E-Minis for the S&P500 at -0.2 percent.

In Asia, there was a wide sell-off in stocks, with MSCI’s broadest index of Asia-Pacific shares outside Japan losing 1.4 percent and China’s blue-chip CSI300 index down 2.32 percent, its biggest daily loss since May 17.

“We are lowering our exposure to global equities to the range we consider ‘underweight’,” Morgan Stanley’s London-based strategist Andrew Sheets said in a note. The previous range was “neutral.”

Expensive valuations and pressure on earnings were among the reasons for the downgrade, Sheets said, while the bank increased its exposure to emerging markets sovereign credit and safe haven Japanese government bonds.

Since the start of the year, global equities have been bolstered by expectations central banks will keep interest rates at or near record lows to boost economic growth.

Those were tempered by a US labor report on Friday that showed nonfarm payrolls jumped 224,000 in June, beating forecasts of 160,000, a sign that the world’s largest economy still had some fire.

Given the strength shown in that data, investors now expect US Federal Reserve Chairman Jerome Powell to slow rate cuts this year.

“The re-adjustment in expectations did push the dollar higher and had a negative effect on Asia but Europe has been supported by investors saying ‘whatever the Fed does, the ECB (European Central Bank) will still cut’,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

Trading is expected to be subdued ahead of Powell’s testimony to the US Congress on Wednesday, which will give clues on the near-term outlook for monetary policy.

The Greek stock index rallied at the open to hit a new February 2015 high before erasing gains and slipping 1.3 percent as traders booked profits after Greece’s conservatives took power after victory in snap elections on Sunday.

Greek 10-year bond yields fell by 14 basis points in early trade to hit new all-time lows of 2.016 percent, reversing the 12 basis point yield rise on Friday.

Currencies

There was some positive news on the protracted China-US trade war, with White House Economic adviser Larry Kudlow confirming that top US and Chinese delegates will meet this week for trade talks.

“Whether the negotiators can find a solution to the difficult structural issues that remain between the two sides is another matter, and Kudlow cautioned there was ‘no timeline’ to reach an agreement,” National Australia Bank strategist Rodrigo Catril said.

In currency markets, the Turkish lira was down 2 percent against the dollar after Turkey’s Central Bank’s Murat Cetinkaya was replaced by his deputy Murat Uysal.

Erdogan sacked Cetinkaya for refusing the government’s repeated demands for rate cuts, laying bare differences between them over the timing of interest rate cuts to revive the recession-hit economy.

The dollar index stood at 97.233, down marginally on the day but near the 3-week high of 97.443 hit on Friday.

The euro, which dropped to $1.1208 on Friday, traded at $1.1225.

After hitting a six-month low to the dollar on Friday as a result of poor economic data and a rise in expectations that the Bank of England will cut interest rates, the pound edged down to $1.2530.

Geopolitics may be in focus this week following news on Sunday that Iran will boost its uranium enrichment, in breach of the 2015 nuclear deal.

“So far tensions have not had a material impact on markets, but if they escalate it could be a different story,” said Catril.

In commodity markets, Brent crude futures were down 0.09 percent to $64.18. US West Texas Intermediate was 0.12 percent down at $57.44 a barrel, and Spot gold gained 0.4 percent to $1,404.48 an ounce.


INTERVIEW: All eyes on Starzplay as lockdown reaps rewards

Updated 45 min 21 sec ago

INTERVIEW: All eyes on Starzplay as lockdown reaps rewards

  • CEO Mazen Sheikh sees business soar as Saudi viewers turn to streaming services

Mazen Sheikh has had a good lockdown.

The founder and CEO of Starzplay, the Middle East’s leading entertainment streaming channel, saw his business soar as curfews, social distancing and travel restrictions left people with little to do apart from slump in front of a TV and binge watch for hours on end.

“I think when the whole situation was unfolding, we were trying to think which way is up and which was down, both on a personal level and also as a company — what it means for our subscribers. It was nerve-wracking in the beginning,” Mazen Sheikh told Arab News.

In the region, it was Starzplay subscribers chose to watch, rather than Netflix or other streaming services, in English and in Arabic.

“What we benefited from, of course, was all the people staying home, but one of the things that worked in our favor was that we are an organization based and headquartered here, and we were able to adapt and localize our services much faster than anyone else,” he said.

“In Saudi Arabia, you can sign up for Starzplay via STC, Mobily or any of the other services. You can sign up with your mobile phone number. Netflix came to this region with a very US-centric mindset, thinking that everyone had a credit card and that having a credit card is a norm in the world. In fact, the reality is different, especially in Saudi. Not everyone has a credit card,” he added.

“So, through one bill where you pay your landline and your broadband, you can also have access to Starzplay on the same bill. You can just download onto your smart TV,” he added.

Starzplay has been in business for five years, and while it is probably not as well known as Netflix, it has been making big inroads into the region, especially Saudi Arabia.

The Kingdom accounts for 40 percent of total revenue, while almost half of all consumption in the Middle East and North Africa region comes from Saudi viewers.

And what have they been watching during the long weeks of lockdown? 

Lots of “Vikings,” “The Office” and Turkish-made romantic soap “Jusoor Wal Jamila.” 

Saudis on average watched more than 18 hours of Starzplay in May, compared with less than 12 a year before.


BIO

BORN: Islamabad 1970.

EDUCATION

  • Schooling in Dubai, UAE.
  • Oklahoma State University, US.
  • University of Kansas, MBA.

CAREER

  • Various executive roles in media and communications, US.
  • Chief sales and operations officer, OSN, Dubai.
  • CEO and founder, Starzplay.

“The beauty is that everyone has a mobile phone. We were there in the market with the right product, the right content, but also the right distribution so the masses can actually sign up for our service. It really benefited us.

“It was not just that we were a streaming service. The whole category benefited from the lockdown, but we were the only one in the market that had this kind of distribution and payment arrangements. We were the only one available to the masses,” Sheikh said.

It is not just the distribution platform that is different from Netflix. Starzplay takes a distinct stance on content, too, as Sheikh explained.

“Our industry is evolving in a simple and predictable way. What is happening is that the more Netflix has gone into its own originals, the more studios see them as a competitor. So studios have been pulling their content away from Netflix.

“Until now, with what comes out of Hollywood and the UK, 95 percent of English-language content was produced by seven or eight studios. In the UK it’s the likes of the BBC and ITV, while in the US it’s Warner, Disney, Sony, Showtime, CBS, all the major studios,” he said.

“So, the way the industry is evolving is that if you want Netflix originals, you go to Netflix, if you want anything else you go to Starzplay,” he said.

Sheikh reeled off an impressive list of top shows on his platform. “Big Bang Theory,” “Billions,” “Grey’s Anatomy” and “Britannia” are among them, while younger viewers soak up “The Flash,” “Supergirl” and other DC titles made by Warner Studios.

Starzplay has also made its first foray into original content, tailored for a Middle East audience, with the series “Baghdad Central.”

“Data is the new oil, they say, and ‘Baghdad Central’ was the result of our experience over five years of consumption history, with billions and billions of minutes consumed. So based on what people were consuming in our key markets and with those insights, we produced our first original,” Sheikh said.

“Baghdad Central” was launched in March with a big name Hollywood actor — Corey Stoll from the award-winning series “House of Cards” — as well as top British and Arab actors.

“We wanted to bring a show to the region that combined the best of the three. It was shot in Morocco in partnership with UK and US producers,” he explained.

That kind of content has pulled in the viewers during lockdown. The figures show Starzplay hit a peak of 6.5 million daily minutes of consumption in Saudi Arabia in the middle of April, compared with about 2 million before the pandemic lockdowns.

Existing viewers are also watching more. The average Saudi spent 28 minutes daily in front of a Starzplay show before the lockdown. That more than doubled to one hour as movement outside the home was restricted.

“To put that into perspective, it took us five years to go from zero to 2 million minutes a day, and it took us six weeks to go from 2 million to 6.5 million. We did more consumption growth in six weeks than we did in the first five years,” Sheikh said.

He is reluctant to forecast how many of these consumers will stay with Starzplay as the lockdowns are eased around the world and the region. 

“I’m expecting some churn, so it’s tough to predict what the base will look like later in the year. We saw tremendous growth, but as the lockdown eases I think we’ll see some churn on those subscribers,” he said.

But even as the lockdown are eased significantly in the region, consumers are not going back to pre-pandemic levels. There is likely to be a permanent shift in demand for Starzplay in the “new normal” environment.

“Unlike Netflix, one of the challenges we had in the region is that the brand awareness and content awareness of our service was comparatively low. One of the things that has happened is that because of increasing demand and awareness, people got to find out about Starzplay. People experienced that and connected the content to our brand.

“That is going to be an enduring and lasting benefit for our company. You cannot unlearn it. I’m expecting some churn in high sign-ups and reduced consumption volumes, but the lasting benefit we’re hoping for is the brand awareness and content awareness that was created,” he said.

That kind of growth is likely to accelerate Starzplay’s evolution from a privately funded startup to a listed public company. It has raised $125 million over its five years, from some pretty impressive investors, including US media giant Lionsgate, the big financial firm State Street Global Advisers, and Nordic investment firm SEQ, which backed Starzplay from the beginning.

With profitability just around the corner, Sheikh does not see the need for further funding, especially as investment sources have dried up during the uncertainty of the pandemic period.

“During COVID times, when consumption and new subscribers were going through the roof, the flip side was that we realized that capital markets were going to be out for 2020. Lucky for us, we are well capitalized, and we are not in a situation where we need to use funds. This is not a good time to be out there raising money,” he said.

“The goal is to serve our customers and also create shareholder value. There are multiple ways of doing that. One is that you generate cash and shareholders benefit from cash dividends. That’s the traditional model. The more high-growth model that is more applicable to companies like us is shareholders push for more growth and expansion to increase the enterprise value of the company,” he said.

Sheikh has set his medium-term sights on a public listing. “In the long run the goal is to continue to grow the business, and in the next three to five years to get into a position where we can list the company on the London Stock Exchange.

“We haven’t absolutely decided that, as it’s so far out. I’d say what we’re looking to do is list ourselves, and if not in London, then other markets, local or London. That’s the ambition, to look to IPO on London or other markets. We’re not there yet. We’re still two to three years away from a decision, but that’s our ambition,” he said.