Weekly Update 8/17/2018 – Turkey’s Woes Continue, U.S. Holds up Relatively Well
US: S&P 500 Index 0.59%, Dow 0.97%, Nasdaq -0.29%
Europe: STOXX Europe 600 -1.24%, German DAX -1.72%, France CAC 40 -1.29%, U.K. FTSE 100 -1.41%
Asia: Japan Nikkei -0.12%, China Shanghai Composite -4.52%, Korea KOSPI -1.57%
Rates/Commodities: 10-Year Treasury yield -1 basis points to 2.86%, WTI crude oil -3.21%, COMEX gold -2.86% Continue reading
The recent depreciation of the Turkish lira has increased volatility in global markets. Other foreign currencies such as the South African rand have followed suit, leading to U.S. dollar strength and more pressure on broad-based emerging markets. Continue reading
- U.S. stocks’ rocky week. The S&P 500 Index is poised for its most volatile week since early June as investors have taken cues from overseas developments. While the index is up 0.3% so far this week, it has posted average daily moves of 0.7% over the period. Today could be another volatile day for U.S. investors with major indexes retracing some of yesterday’s gains in early trading.
Emerging market (EM) equities have experienced significant selling pressure this month amid the U.S. and China’s ongoing trade dispute and the crisis in Turkey, which has sparked contagion fears and threatened to send the country into recession. After yesterday’s 1.8% decline, the MSCI EM Index is down 9.9% year to date, well behind the nearly 7% return for the S&P 500 Index. So is EM a sell now? Continue reading
- No panacea for Turkey. Structural challenges including heavy reliance on external funding for its trade and fiscal deficits are unlikely to be fixed soon. However, there are several reasons not to expect contagion, including the Turkish central bank’s unused weapons to support its currency, potential support from the IMF, and possible investments from other countries (Qatari support already announced). Keep in mind that the Turkish economy is small and the amount of foreign-held Turkish debt is quite manageable at about $220 billion. A lot of risk has been priced in with the 18% correction in the MSCI EM Index from January highs, which we think may be overdone given generally favorable fundamentals for most major Emerging Market (EM) countries.
Last week’s inflation data showed that pricing pressures are at their strongest point of the economic cycle. To us, these reports are much less alarming than their headline readings suggest. Continue reading
- Retail sales gain for a sixth consecutive month. U.S. retail sales increased 0.5% in July, posting sixth straight months of growth for the first time since 2014 and handily beating consensus estimates (0.1%). Excluding automobiles and gas, sales rose 0.6%. Consistent growth in retail sales reflects the health of the U.S. consumer, emboldened by fiscal stimulus implemented earlier this year. Control-group sales, which are used to calculate gross domestic product, increased 0.5%, above consensus expectations for a 0.4% gain, pointing to another strong quarter of economic growth.
Several indicators suggest fixed-income investors are rightfully skeptical of recent signs suggesting pricing pressures are running too high. Continue reading
- Fixed income sentiment and inflation. Shorter-term breakeven inflation rates have dropped to their lowest levels of the year, implying market expectations for persistent inflation continue to dwindle. Today on the LPL Research blog, we analyze fixed income’s tempered reaction to recent inflation data, which has weighed on longer-term rates.
Don’t look now, but on August 22, 2018, this current bull market will top the 1990s bull market as the longest ever. However, be aware that the 1990s bull market saw the S&P 500 Index gain 417%, while the current bull market is up approximately 320%—so you can’t call this the greatest bull market…yet. Continue reading