Daily Market Color

Turkey Contagion Weighs Down Markets


Talking Turkey

The country of Turkey dominated the headlines today with the Turkish Lira plunging as much as 17% against the US Dollar.  Turkey’s refusal to release an American pastor has led to an escalating rift with and threats from the US. The Financial Times also reported that said the ECB is concerned with European banks’ exposure to the embattled country, accelerating the decline in the Turkish financial markets.  Turkish President Erdogan called for an emergency meeting on Saturday in an effort to stabilize the currency and address contagion fears that threaten to drag the rest of Europe down with it.



Markets Struggle with Turkey’s Future

The political and economic drama in Turkey prompted a global flight to safe haven assets.  US Treasurys maintained a strong bid throughout the trading session, with yields/swap rates closing 4-7 bps lower across the curve.  The yield on the 10-year note finished the day near 2.87%, a sharp move from when it crossed the 3.00% technical level earlier this week.  All major US stock indices finished the day 0.6% to 0.7% lower, with the financial sector getting hit the hardest, as investors speculated the problems in Turkey may have the most impact on banks.  Similar bearishness was observed in the European and Asian equity markets in response to the geopolitical uncertainty.   In commodity markets, crude oil futures managed to finish the day higher, with a barrel of WTI gaining 1.4% to $67.65.  For the week, however, WTI finished with a loss, marking its sixth consecutive week doing so – its longest such streak in the past three years.    



CPI Holds Steady

Today the US Labor Department released the Consumer Price Index data for the month of July, with the report indicating that inflation remained fairly steady over the past month.  Headline Inflation on the MoM basis in July grew at 0.2%, meeting the 0.2% expectation, which was an increase over last month’s report which showed CPI growing at 0.1%.  On a YoY basis, inflation met expectations by growing at a2.9% pace in July, the same rate reported in June.  July MoM Core CPI grew at the same 0.2% rate that it did in June, which also happened to be the median estimate.  Core inflation was up 2.4% in July on a YoY basis, beating July estimates of 2.3% and last’s month’s reported 2.3%. 



Fuel Oil and gasoline prices were a key driver of inflation — up 3.9% and 1.1% respectively.  In addition transportation services, used cars and trucks and new vehicles all experienced pricing increases, which contributed to higher overall prices.  Food prices were unchanged on the month.  Medical costs, apparel, electricity and gas utilities were generally lower in price this month. Unfortunately for consumer spending, the annual inflation growth was not matched by gains in reported average hourly earnings (down -0.2% in YoY real earnings), despite reports of the current robust labor market.

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