Turkey still front of mind, but so far contagion has been limited, Equities have been softer, as have base metals (with oil marginally and gold) and there has been some widening of credit spreads, but it’s been a relatively orderly market and with the Turkish lira still trading barely above its lows. The Dow has closed down 0.5%, the Eurostoxx 600 index by 0.25%, the Eurostoxx Bank Index by 1.18%. The Turkish stock market closed down 2.38% and Turkish 10 year bonds up 52bps to 21.53%. (Turkish CPI in July was 15.85% after averaging 7.8% in 2016, increasing to 11.1% average last year; it runs a current account deficit running at 5.9% of GDP.)
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For anyone following my Platinum Service it made 80 points yesterday and is now ahead by 420 points for August, having made 1074 points in July, 994 points in June, 1927 points in May, 1657 points in April, 1760 points in March, 2256 points in February, and 879 points in January. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points
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Currencies
The USD remains in the ascendancy, but it has not extended its gains against the majors. The AUD/USD was testing 0.7250 in early Asia yesterday, and although it remains not far above that level as I post today’s commentary (at around 0.7270/75), it has not made new lows with the market trading in a sideways pattern.
To recap yesterday, the Turkish lira continued where it left off last week, opening 11% lower in illiquid conditions during the Asian session and taking the currency to a new low. This triggered a ripple effect, with the South African Rand suddenly spiking 10% lower in thin conditions, although it subsequently reversed most of this move to be down only 2.4% on the day.
The Turkish central bank announced yesterday morning it was cutting bank reserve requirements (intended to free up $6b of USD liquidity) and pledged to ‘’take all necessary measures’’ to stem the crisis, although it refrained from announcing a rate hike. Meanwhile, the Turkish banking regulator announced restrictions on TRY FX swaps to make it harder for speculators to short the currency. These are likely to be only short-term fixes however, and until there is a clear and credible policy response from Erdogan and the central bank, the TRY will remain under downward pressure. (See also the call from the Bundesbank for stronger action, mentioned below.)
The Turkish lira remains not far above its lows of early yesterday, after the measures to provide currency support. (The USD/TRY is trading at around 7, having been around 4.8 to the dollar only a month ago.) Seeking to calm some market nerves, the Bundesbank’s Wuermeling said that the ECB has not seen the need for Turkey bank risks meeting and not to ‘’over dramatise’’ the risk of Euro shoot. Mind you, in the same breath they were also urging Turkey to take ‘’bold action’’ to stop a spiral.
Bonds: Italian and Euro periphery bonds under focus
Italy has also reappeared on the market’s barometer, with pressure on some Italian (and other European) bank stocks, presumably from some concerns over exposures to Turkey, but also Italian political/budgetary uncertainty. Claudio Borghi, the head of Italy’s Lower House Budget Committee has called for ECB support for Euro periphery economies to defend speculative attacks. ‘’There cannot be a system at the mercy of market movements without any shields by the central bank’’, he said Monday. ‘’Nowadays there is a system that has a residual amount of quantitative easing, but with everybody knowing that this is being phased out and will come to an end soon’’.
Italian 2 year bond yields jumped 16.7bps while 10 year yields rose 10.8bps. 10 year bond yields in Spain (4.8bps), Portugal (+6.8bps), and Greece (+6.7bps) were higher on the day when German bunds were virtually unchanged and US Treasuries likewise, the 10 year at 2.8768% (+0.36bps).
Economics
There were no economic reports of note yesterday. Ahead of its July economy releases today, China yesterday released its new yuan lending volumes, aggregate financing, and money supply report. Banking yuan loan volumes printed at 1.45tr, above the 1.275tr expected, suggestive of some easing in credit conditions. Aggregate financing ‘’ a measure of non-bank/alternative financing’’ though was a little softer than expected. The market is looking for somewhat stronger July readings for Retail Sales and Industrial Production today and steady Fixed Assets Investment.
This morning on the Economic Front we have German GDP and CPI at 7.00 am. This is followed by UK Unemployment and Average Earnings at 9.30 am. Next we have the German and Euro-Zone ZEW Survey. Also at this time we have Euro-Zone GDP and Industrial Production. Finally we have the US NFIB Business Optimism and Import/Export Price Index at 11.00 am and 1.30 pm respectively.
September S&P 500
As long as the S&P can hold the key 2800/2810 support area I am still a buyer on dips. Yesterday the S&P did not hit my 2815 buy level before rallying and then subsequently selling off into the Chicago close and I am still flat. Today I will lower my buy level slightly to 2803/2813 with a 2794 stop. Yesterday the S&P rallied to an intra-day high of 2844 and this area should now act as strong resistance. Today I will be a small seller on any rally higher to 2843/2852 with a 2858 stop.
EUR/USD
The Euro traded in a narrow range yesterday and I am still flat. Today I will leave my buy level unchanged from 1.1260/1.1320 with the same 1.1215 stop.
September Dollar Index
With the Daily Sentiment Index reading at such an extreme level I continue to be a seller on rallies. Today my sell level will remain unchanged from 96.70/97.20 with a 97.55 tight stop.
September DAX
Given the exposure by German banks to Turkey I was surprised how well the German DAX performed yesterday. I am still flat and given my concerns I am reluctant to chase this market higher and today I will leave my buy level unchanged from 12140/12210 with a 12095 stop. I will also leave my sell level unchanged from 12540/12620 with the same 12685 stop.
September FTSE
Given the amount of UK data to be released at 9.30 am I am expecting volatility in both Sterling and the FTSE markets to pick up. I am still flat and today I will raise my sell level slightly to 7715/7755 with a 7785 higher stop. I will also raise my buy level to 7490/7535 with a 7455 tight stop.
Dow Rolling Contract
Incredibly the Dow missed my 25380 T/P level by one point before falling over 200 points to just short of my second buy level at 25140. Today I will now lower my T/P level on my 25335 long position to 25370 while at the same time leaving my second buy level unchanged at 25140 with the same 25070 stop. Again if any of the above levels are hit I will be back with a new update for my Platinum Members.
September NASDAQ
My NASDAQ plan worked well with the market trading higher to my 7480 sell level before the market sold off to my 7445 T/P level and I am now flat. Today I will now raise my buy level slightly to 7290/7335 with a 7245 stop. My only interest in selling the market is on a rally higher to 7505/7545 with a 7575 stop.
September BUND
I am still flat the Bund which traded in a sideways pattern yesterday. Today I will leave my sell level unchanged from 164.15/164.65 with a same 165.05 stop. I will also leave my buy level unchanged from 162.10/162.50 with a 161.70 stop.
Gold Rolling Contract
My Gold plan worked well with the market trading lower to my 1197 buy level before rallying to my revised 1201.50 T/P level. Subsequently I emailed my Platinum Members to re-buy Gold at 1192. I am still long in what is now the capitulation phase for both Gold and Silver. I have a 1196 T/P level on this position with a 1178 stop. If any of the above levels are hit I will be back with anew update for my Platinum Members.
Silver Rolling Contract
Silver traded lower to my second buy level at 15.10 for a now average long position at 15.30. I will now lower my stop on this position to 14.70 with a 15.45 T/P level. Again if any of the above levels are hit I will be back with anew update for my Platinum Members.
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