Argentine crisis and Turkish Lira — a serious problem

Weekly Report - 03/09/2018

Currency Turmoil

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The global stocks were lower the past week although US indices finished the week flat. The recent events about the Argentine currency are in focus. The past week the central bank of the country raised the interest rate from 45% to 60%, due to the depreciation of the exchange rate by about 20%. Even with the help of the IMF, which was offered earlier the fact was imminent. These facts caused a negative sentiment to the markets and created the sale-off for the risky assets.

The Turkish lira fell by more than 6% on Thursday after the events of the peso but also the resignation of a major official in the Central Bank of Turkey was a major hit. The Lira corrected on Friday to close the week at 6.55.

The Week that was


Crude oil exports were on the slide as importers shun Iran in fear of being added to Trump’s trade enemy list and the USD stayed near a month low versus the euro as the yen went up after the U.S.-Mexico deal. The Gold slid down on 28.8 from a two-week high. It went up on the previous trade session, as the dollar firmed against the yuan. That made the precious metal more expensive for buyers in the world's biggest consumer country – China. Also, the renewed legal issues for President Donald Trump stopped investors’ positive appetite. Caterpillar fell 2% and Boeing 0.7 %. Deere shares dipped 1%. The tech shares Alibaba fell 3.2% and Netflix went also down 1.5 %. The US Government had to impulse new tariffs on $16 billion worth of Chinese import-product categories. China struck back with its fresh tariffs on $16 billion worth of imports. UK government took steps to prepare the public and companies for a probable no-deal Brexit scenario creating uncertainty for the country's currency.

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Main Focus This Week


USD economic data this week will include August ISM manufacturing and non-manufacturing PMI numbers coming out on Tuesday and Thursday. After that, we will have the July trade figures on Wednesday. The very Important ADP nonfarm employment change figures on Thursday. And the government’s August labor market figures on Friday. In focus will be also the FOMC member’s speeches, and that will probably give a lot of volatility to the market. The USD Index went down about 0.01% at $95.14. A special date for the EUR this week is the August private sector PMI numbers Monday and Wednesday. The July retail sales figures out of the Eurozone will be on Wednesday and the next day on Thursday we will have Germany’s factory orders. Finalized 2nd quarter GDP numbers out of the Eurozone and German trade and industrial production figures will come out at the end of the week. The attention will probably be on the data about Germany. Brexit this week will be in focus again, any negative comments or news are probably to overshadow any economic data through the week. Friday’s NAFTA talks drew no conclusions but will continue this week. The loonie will likely suffer volatility until a solution is found. No real progress on the US-China trade war was evident, in fact we now have more tariffs, and above all the threat of the President of the United States leaving the WTO – an ever-present risk that can jolt the markets at any time.

 

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