Duncan Donald

Mon, Aug 20

Weekly Markets Update - 20/08/2018

The developments in Turkey dominated the financial markets again last week, as the tensions between the US and Turkey continue to grow.  We have seen a fight back from the Monday lows in the USD/TRY rate of 7.2149 to close the week nearer 6.0100.  This turnaround came about as Erdogan sought to increase global allies and championed the potential support Merkel’s Germany and Qatar. Being no stranger to investing in ailing markets to stabilise and seek value, Qatar notably invested in Barclays during the financial crisis, bringing immediate stability, growth and ultimately a very fast return on investment. Whilst a short term pause in the plunge of the Lira will give the people of Turkey encouragement, the situation is far from over. Last week we heard from US Treasury Secretary Steve Munchin that continued failure by Turkey to release the imprisoned US Pastor Andrew Brunson, will lead to further trade sanctions, a situation Turkey simply can’t afford.

The ripple of contagion is hurting other countries in the Emerging Market space with South Africa, Russia and India have all suffered heavy selling last week, most notably South Africa who saw the largest week on week as fall, as investors look to shed high volatility exposures and speculators circle to capitalise.

As the evident aggressor in most of the global trade negotiations, currently the US seems to be coming out of it very well. As they are leading the global market turnaround from an interest rate perspective, they are now benefitting from the risk flight to safety status. In a week where we saw global stocks and currencies come under pressure, the Dollar and the S&P fared very well, the Dollar is now nearly 6% up on the year to date.

In the UK the data continues to support the optimism of the Bank of England. Data released last week brought lower unemployment and stronger Retail Sales. The delivery of solid data, without being exceptional, seems to be becoming relatively standard from the UK. The impacts are most certainly muted with the backdrop of Brexit, with both the Pound and Gilt markets struggling to make any traction on strong UK data.

For the UK this week there are further “crucial” Brexit talks which will begin today as Brexit Minister Raab meets with EU negotiator Barnier ahead of the Governments release of their “no deal” contingency plan on Thursday. Naturally the market certainly feels low in optimism for tangible progression.

The US also have some major trade negotiations this week with talks with Mexico, the EU and most significantly China.  Much is being made of the meeting between the US and China on Wednesday and Thursday this week, which coincides with the start date of with the latest wave of tariffs on Chinese exports going live.  The markets reacted positively to the news of the meeting on Friday but there is scepticism that the seniority of meeting participants from both sides could weigh on the groups ability to make immediate progress.