Daily Market Color

Equity Markets Slide on Earnings Disappointment


Turkey Threat Escalates

The global concerns over the financial stability of Turkey continued to curb the risk appetite of financial markets today.  Over the past two days Turkish authorities have managed to escalate the trade rift with the US, first by declaring a boycott on US electronic goods such as the iPhone, and then announcing a series of tariffs to be imposed on US exports, including motor vehicles, alcohol and tobacco.  Much of the action was a rebuttal to President Trump’s doubling of the tariffs on Turkish metal imports, which the Vice President of Turkey Fuat Oktay referred to as “deliberate attacks on our economy”.  The controversy over the US pastor who currently sits on trial in Turkey on charges of terrorism – remains a fundamental point of dispute between the two countries.  “For the sake of a pastor, they have come to the point of breaking relations with Turkey,” stated Turkish President Recep Tayyip Erdogan, in denouncing Trump’s stance on the matter.



The Turkish lira has managed to pare losses for the second day in a row, rising 6.75% against the dollar during today’s session, albeit it remains down nearly 40% year-to-date.  While the decline has helped mitigate some of the impact of US tariffs on Turkish exporters, it has heightened concerns over the ability of the Turkish government and corporations to pay back outstanding debt denominated in foreign currencies. The outstanding foreign-denominated debt issued by Turkish entities is one of the largest debt burdens within the emerging markets.


Equity Markets Pare Losses

Equity markets gained back some of their early losses, but still ended the day with noticeable declines, in spite of strong retail sales numbers. All three major US equity indices were down on the day. The tech-heavy NASDAQ was down 1.23% on news that the ADR shares of Tencent, the Chinese tech company, sank almost 7% after the company posted disappointing earnings.  The shares of many other US and Chinese tech companies followed Tencent to lower values.  The S&P 500 and DJIA fell 0.76% and 0.54% respectively.  Macy’s, the US department store, suffered almost a 16% drop on disappointing sales growth YoY.



Across the curve Treasury yields were down 2 to 4bps, with the 10-year US Treasury note closing at a yield near 2.86% — down about 4 bps on the day.  In foreign exchange markets, the US Dollar was up 0.2% against the Bloomberg Dollar Spot Index.  The US Dollar (USD) was mostly unchanged against the Euro (EUR), up 0.2% vs the British Pound and down 0.4% compared to the Japanese Yen (JPY).  Crude oil futures were off on the day on the unexpected report from the Energy information Administration (EIA) that crude stockpiles increased by 6.81 million barrels in the past week.  Estimates were for a 2.5 million barrel decline in this week’s report from the EIA.  Crude oil futures settled lower 3.3% at $64.86/barrel, the lowest level since the start of the summer season.



Empire State Manufacturing Sector Strong

The New York Empire State Manufacturing Index’s reading released today was the strongest data in almost two years, with the index up 3 points from the prior month.  The 25.6 reading was a strong outperformance of expectations of 20.0.  According to the report, delivery times have grown longer while inventories have remained constant.  Employment has increased, as have the number of hours worked.  While prices did not grow significantly, they remain at elevated levels “indicating ongoing significant price increases”.   Firms remain optimistic over the next six months.  Employment and prices were expected to increase while shorter delivery times and fewer unfilled orders were also expected.



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