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Can sporting success impact financial markets?

08 June 2018

Since Germany lost their first match in the World Cup on the 17th June the DAX Index of German stocks has fallen 5%, whereas the FTSE 100 Index is marginally positive over the same period.  However, this has more to do with potential trade wars and Merkel's difficulties than Germany being knocked out of the World Cup. My father once told me that a win at the Lords test match was worth a point on the FT index (1% in those days) but I have found no evidence for this in recent times. 

This week Bank of England ("BoE") Chief Economist, Andy Haldane, suggested that the 'feel good factor' generated by England doing well at the World Cup had an influence on his decision to vote for a rate rise at the recent Monetary Policy Committee meeting. He had many other reasons including upward pressure on wages and costs. Certainly, the good weather and the World Cup are boosting beer consumption. A lack of carbon dioxide due to plants being serviced during the summer and increased demand has created a shortage of some types of beer.  The question is how important is the success of England and does this have more than a temporary impact on consumption.  The last summer of sporting success was 2012 when British sportsmen and women did so well at the London Olympics and Andy Murray won the US open.  While in the short term there may have been a pickup in consumption, there was little impact in the longer term and in some cases productivity will suffer from workers watching matches.

Looking back further in history to the glorious summer of 1966 the BoE raised rates from 6% to 7% during the World Cup.  However real, gross domestic product growth slowed from 2.2% in 1965 to 1.6% in 1966 and by May 1967 the Bank had cut rates back to 5.5%.  Sadly, the euphoria of the World Cup win was short lived.  Since then, England success on the football field has left us little to cheer about. If the heat wave and England's cup run continue, then the economy may get some short-term fizz but could turn flat in the aftermath. 

 

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