The Turkish Lira’s travails dominated the airwaves and financial market price action elsewhere on Friday. TRY ended the New York day 16% lower, having been down 19% at worse, and has just restarted the week above 7.00 to the USD, some 12% lower. President Trump confirmed Friday he was doubling tariffs on imports of Turkish aluminium (to 20%) and steel (to 50%), adding to Turkey’s economic travails. Turkish PM Erdogan’s on Sunday has said that ‘’interest rates are a tool of exploitation that makes the rich richer and the poor poorer’’ we won’t fall into this trap. Note the Turkish central bank’s key policy rate is currently 8% – half the rate of inflation (15.8%). Turkey’s Finance Minister (Erdogan’s son-in-law, remember) has just been out saying that Turkey’s institutions will take necessary steps on Monday morning to ease market concerns and that he will ‘’offer fiscal support to strengthen the independence of monetary policy’’. We await developments here with interest, as they say.
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Recall it was the FT front page story revealing ECB angst at Euro-Zone bank exposures to Turkey that sparked Friday’s EUR sell-off (from above 1.15 versus the USD to below 1.14) while AUD again demonstrated its credentials as the favoured EM risk proxy. JPY was predictably the best performing G10 currency Friday and the only one to rise versus an otherwise stronger dollar, with DXY ending 0.9% higher and BBDXY +0.7%. The 96.36% DXY closing level is its highest since 27th June 2017.
US CPI came in at 0.2% in core (ex-food and energy) terms as expected but was 0.24% to two decimal places and meaning the annual rate rose to 2.4% from 2.3%, above expectations. Base effects are partly to blame here, with CPI inflation now seen cruising in the 2.3-2.4% area for the rest of the year.
The Canadian Dollar was only temporarily stronger after good headline labour market statistics but the underlying details were not so positive (gains all part time and mostly public sector, while the drop in unemployment was flattered by a fall in the participation rate). Also not positive for CAD, Trump tweeted that while things were going well regarding negotiations with Mexico on a new NAFTA, Canada ‘’must wait’’. ‘’Their Tariffs and Trade Barriers are far too high. Will tax cars if we can’t make a deal’’ Trump tweeted Friday.
Sterling drew only temporary support from Q2 GDP printing an ‘’as expected’’ 0.4%% – though the June monthly read was 0.1% against 0.2% expected. Sterling ended last week as the third worse performing G10 currency after the NZD and SEK. Brexit negotiations resume in Brussels later this week.
Back to AUD, Fridays break below important trend line support in the 0.7325-50 area is ominous. Having been looking to news on whether President Trump will proceed with tariffs on a further $200bn of Chinese imports next month as the likely fundamental catalyst for a break lower, the fact it has come for other reasons and well ahead of this, bodes particularly poorly. If Trump does not pull back on the next phase of tariffs against China, this now looks increasingly likely.
Equities:
Shanghai was the only major equity market not to finish in the red Friday, with European stocks leading the charge lower. Financials (-2.3%) led the 1.94% drop in the Eurostoxx 50 (and 2% fall in the German Dax) and it was financial and materials that led the 0.7% fall in the S&P 500. On the week, the S&P 500 was off 7 points or 0.25%.
Bonds:
10yr benchmark bonds in the US, Euro-Zone and UK were all 5-6bps lower Friday. Italy bore the brunt of widening in peripheral EZ spreads, the 10yr BTPs up 8.7bps.
:Commodities
Impending (November) sanctions on Iranian oil exports are one factor continuing to support oil with WTI and Brent both adding over 1% Friday (Brent +70 cents and WTI +80 cents). Aluminium bucked the trend of weaker industrial metals elsewhere (LMEX -0.33%) with zinc the day’s biggest faller. Gold was little changed.
Economic Data
US July core CPI 0.2% as expected, but 0.24% unrounded, pushing yr/yr up to 2.4% from 2.3%, above the 2.3% consensus.
Headline CPI 0.2% as expected, yr/yr unchanged at 2.9% as expected
Canada July Employment 54.1k vs. 17k expected and 38.4k in June
Canada Unemployment 5.8% from 6.0% better than the 5.9% expected, but aided by a 0.1% fall in the participation rate to 65.4%
UK Q2 GDP +0.4% q/q/1.3% y/y as expected
UK June GDP 0.1% (0.2%E, 0.3%P)
UK June Industrial Production 0.4% (0.3%E, -0.2%P revised from -0.4%)
UK June Manufacturing Production 0.4% (0.3%E, 0.6%P revised from 0.4%)
This morning on the Economic Front we have no data of note on either side of the Atlantic as all eyes focus on the Turkish Currency crisis.
September S&P 500
Since my last update the S&P made a new recovery high at 2863 which was just shy of the January 26 all-time high of 2876. As very few positions had hit last week since I had my vacation I emailed my Platinum Members to buy the S&P on Friday at 2837 with a 2843 T/P level and after both of these trades were executed I emailed them again to re-buy the market at 2832 before been able to cover this position with another gain at 2838 and I am now flat. Despite the ongoing Turkish crisis I still believe that the S&P will still make new highs. Today the S&P is opening lower and I will again look to buy the market on any dip lower to 2806/2815 with a 2798 wider stop. I still do not want to be short the market at this time.
EUR/USD
Unfortunately the Euro just missed my 1.1615 T/P level after the release of the US NFP data with a rebound high of 1.1610 before stopping me out of this position at 1.1555. Subsequently I emailed my Platinum Members to re-buy the Euro at 1.1460 before also getting stopped out of this trade late on Friday at 1.1395 on the worsening Turkish crisis. With the Daily Sentiment Index at just 8% Dollar bulls it will not be long before we see a new tweet from President Trump looking for a weaker Dollar. Today I will again loon to buy the Euro on any further move lower to 1.1260/1.1320 with a 1.1215 stop. I still do not want to be short the Euro at this time.
September Dollar Index
I am still flat the Dollar which has now rallied to its highest level in over a year. The DSI is now at 92% bulls with the market extremely overbought. The Dollar has strong resistance from 96.70/97.20 and today I will be a seller on any rally to this area with a 97.55 tight stop.
September DAX
Once the S&P sold off late on Wednesday I emailed my Platinum Members to lower any DAX buy level to 12420 which was filled on Friday morning before rallying to my revised 12442 T/P level and I am now flat. With the Euro trading at 14 month lows I would have expected the DAX to gain some support from this but the escalating Turkish Lira crisis is certainly putting pressure on European bank shares. The DAX has strong support from 12140/12210 and today I will be a buyer on any dip to this area with a 12095 tight stop. The break and close below 12550 is a worry for DAX bulls and today I will be a small seller on any rally higher to 12540/12620 with a 12685 stop.
September FTSE
My FTSE plan worked well with the market finally trading higher to my 7715 sell level last Thursday before trading lower to my 7680 T/P level on Friday and I am now flat. My buy level will remain unchanged from 7450/7490 which I know is well below current prices but I have no desire to chase this market higher. Today I will again look to sell the FTSE on any rally higher to 7695/7745 with a 7780 stop.
Dow Rolling Contract
I bought the Dow last Friday at 25335 with a T/P level of 25380 which so far has missed by a few points. I am still long and today I will now add to this position on any further move lower to 25140 with a tight 25070 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.
September NASDAQ
Unfortunately I was stopped out of my short 7360 NASDAQ position at 7410. Subsequently I went short the market again at 7475 before the market finally sold off on Friday to my 7440 T/P level and I am now flat. Today I will be a small buyer on any dip lower to 7270/7325 with a 7225 stop. I still believe that the NASDAQ is trying to put in a top in the market and today I will again look to be a seller on any rally higher to 7480/7530 with a 7570 stop.
September BUND
My suspicions that the Bund was on the verge of a major rally have certainly proved to be correct with the market now trading nearly 350 points higher since my last Daily Commentary. Thankfully we were not short for this move and are still flat. Today I will now move my buy level higher to 162.10/162.50 with a 161.70 stop. The Bund has strong resistance at 164.00 and today I will be a small seller from 164.10/164.60 with a 165.05 stop.
Gold Rolling Contract
With the Daily Sentiment Index reading at near record lows I emailed my Platinum Members to buy Gold on Friday at 1207 with a lower 1213 T/P level which thankfully was filled and I am now flat. Today I will again look to buy Gold on any dip lower to 1189/1198 with a 1182 stop.
Silver Rolling Contract
No change as I am still long Silver at 15.50 with the same 15.70 T/P level. I will continue to look to add to this position on any further move lower to 15.10 with the same 14.90 stop. If any of the above levels are hit I will be back with a new update for my Platinum Members.
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