Weekly Update 8/10/2018 – Indexes Falter Late in Week as Dollar Surges

US: S&P 500 Index -0.28%, Dow -0.58%, Nasdaq +0.34%
Europe: STOXX Europe 600 -0.9%, German DAX -1.5%, France CAC 40 -2.6%, U.K. FTSE 100 -1.7%
Asia: Japan Nikkei -1.0%, China Shanghai Composite +2.0%, Korea KOSPI  -0.2%
Rates/Commodities: 10-Year Treasury yield -9 basis points to 2.86%, WTI crude oil -1.1%, COMEX gold -0.3%

Global markets moved lower this week, as overseas turmoil on Friday erased the week’s earlier gains. The Turkish lira fell more than 10% vs. the U.S. dollar Friday after a series of speeches from Turkish President Tayyip Erdogan stoked fears of economic turmoil in Turkey after the U.S. imposed sanctions on the country last week. President Trump also announced this morning that the U.S. will double steel and aluminum tariffs on Turkey, escalating the conflict further. The drop in the lira heightened concerns related to Turkey’s large holdings of foreign denominated debt (notably dollars and euros) which become harder to repay as the currency weakens. The shake-up also sent the U.S. Dollar Index to more than one year highs on Friday, weighing on major indexes.

Overall however, U.S. markets continued to lead the rest of the world, as the Russell 3000 recorded its first all-time high since January, and the NASDAQ continued is winning streak to eight straight sessions before being broken Friday. It was a light week for economic data in the U.S., with consumer price index (CPI) data meeting consensus expectations and producer price index (PPI) data coming in modestly lower than expected, but showing some internal upward pressure. While there were no surprises with the announcements, the longer-term trend shows inflation is accelerating, with CPI climbing 2.9% year over year in July, the biggest annual gain since February 2012. As noted by LPL Chief Investment Strategist John Lynch “We believe price and wage growth are still manageable. However, we’ll continue to monitor economic reports for any signs that the U.S. economy is overheating.”

In Europe, markets moved into negative territory for the week following the news out of Turkey, with several major banks dragging the STOXX 600 down more than one percent on Friday over concerns about their exposure to the country. In Asia, trade tensions continued to dominate the headlines, as China made good on its threat to impose 25% tariffs on $16 billion worth of U.S. imports, though the Chinese Ministry of Commerce surprisingly left crude oil off the list of affected goods.

Next week’s economic releases in the U.S. include NFIB Small Business Optimism on Tuesday, as well as industrial production on Wednesday and the Conference Board’s Leading Economic Index on Friday. In Europe, gross domestic product and inflation data are due out in the middle of the week, and industrial production numbers are due out of Japan and China. View the full list of events on our Weekly Global Economic & Policy Calendar.

 

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