Market Spotlight on Turkey and Spain

October 9, 2017

On a day when holiday closures in the United States (Columbus Day), Japan (Health Sports Day), Canada (Thanksgiving), and South Korea (Hanguil Day) ordinarily might be expected to sap the market of leadership and thus depress volatility, there have been big movements affecting Turkey and Spain.

A diplomatic dispute between Turkey and the United States following the former’s arrest of a U.S. embassy employee has intensified, sending the dollar up 2.75% against the lira today.

Spain’s 10-year sovereign debt yield, which soared in the immediate wake of the chaos surrounding the Catalonia referendum on independence, fell back six basis points in response to a big street demonstration in Barcelona endorsing a desire not to secede. The Spanish Ibex rebounded 0.7%.

The dollar has lost 0.7% against sterling and 0.4% versus the Chinese yuan.

British Prime Minister May’s attempt to jump start talks on that country’s future relationship with its former EU partners is apparently dead on arrival, as a senior EU official reiterated that first the U.S. must settle its outstanding debt with the European Union. Only then can the two parties redesign their future.

Chinese markets opened after being closed all last week in observance of the Communist victory over Chinese Nationalists in 1949. China’s service sector purchasing managers index fell 1.1 points to a 21-month low of 50.6 in September, and this depressed the composite PMI by 1.0 point to a 3-month low of 51.4. Chinese currency reserves rose to $3.108 trillion in September from $3.092 trillion the month before.

Against other currencies today, the dollar has risen 0.4% versus the Mexican peso, 0.2% against the Swiss franc, Aussie dollar and kiwi, and 0.1% relative to the loonie and yen but slipped 0.1% vis-a-vis the euro.

Equities rose 0.8% in China and 0.5% each in New Zealand and Australia. Stocks in Europe advanced 1.5% in Greece but are little changed in Germany, Switzerland, Italy, France or Great Britain.

The ten-year German bund is unchanged, while its British counterpart edged a basis point higher.

Gold advanced 0.7% to $1,383.3 per ounce, while WTI crude oil is unchanged at $49.28 per barrel.

The Executive Board at the National Bank of Serbia has cut its key interest rate to 3.5% from 4.0%, citing better inflation prospects. Such is the rate’s first change since a pair of 25-basis point reductions in 2016. Since April 2013, the key monetary policy rate has been lowered by a total of 875 basis points.

German industrial production jumped 2.6% in August, three times more than forecast. Output in July-August on average was 0.9% greater than the 2Q mean level, and August production surpassed its year-earlier level by 4.7%. Factory output leaped 3.2% between July and August, led by a 4.8% increase in the production of capital goods.

Investor sentiment toward the euro area improved to a 10-year high of 29.7 in October according to the Sentix gauge from readings of 28.8 in September and 10.0 at the end of 2016.

Ireland’s construction purchasing managers index rose 0.5 to a 2-month high of 55.6 in September but remained well below the 2017 peak of 63.6 last March.

It’s been confirmed that French GDP expanded 0.5% for a third straight quarter in 2Q17. Sentiment in manufacturing and services were unchanged in September from August, but confidence in construction improved further.

Turkish industrial production in August was 5.2% higher than a year before, while retail sales went up 2.2%. Turkish CPI inflation accelerated to 2.7% in September, but Turkish markets today are marching to a geopolitical beat and not paying attention to released data.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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