Market movers today
It is a very quiet start to the week on the data front with basically no economic releases being announced today. Instead, financial markets will continue to focus on the situation around Turkey (despite Turkey having a national holiday during the latter half of the week) and wobbly emerging market sentiment more generally.
Later this week, preliminary PMIs in the US, eurozone and Japan will provide clues on whether the recent pattern that the US is surprising on the downside and the eurozone on the upside when it comes to economic data will be sustained.
Selected market news
Asian equities got off to a mixed start to the week as financial markets are looking for further clues on the direction of the trade negotiations between the US and China and the global monetary policy stance, as central bankers gather in Jackson Hole at the end of this week. Compared to the frantic start last week, financial markets are in quieter mode as the Turkey risk is less present this morning than last Monday.
Turkey downgraded by major rating agencies late on Friday. Moody’s downgraded Turkey to ‘Ba3’ (‘junk’) with negative outlook. S&P cut Turkey’s sovereign debt rating one notch to ‘B+’ and the long-term local currency rating to ‘BB-‘. S&P expects a recession for Turkey in 2019. According to the agency, ‘over the last two weeks, the Turkish lira has exhibited extreme volatility. This follows Turkey’s prolonged economic overheating, external leveraging and policy drift.’ The Turkish market will be closed during the latter half of this week due to the public holiday Kurban Bayrami (Sacrifice Feast). Trading in the TRY will be thin, but high volatility is likely to stay. The markets will remain in wait-and-see mode as the US could hit Turkey with new sanctions this week or there could be a diplomatic breakthrough with a possible release of the American pastor.
Over the weekend, there were calls from Italy for the ECB to prolong the QE programme. The point was made by Italian cabinet Undersecretary Giancarlo Giorgetti, who is a prominent member of the League, the government coalition partner. We doubt the ECB has any plans to do so, possibly setting the new Italian government up for a clash with the ECB later in the autumn. This will be in addition to a fight with the EU commission over the country’s budgetary stance. On this issue, there were fresh reports that the government plans significant new spending on infrastructure in the wake of the Genoa bridge collapse, boosting the deficit to 1.6% of GDP instead of the 0.8% of GDP planned by the previous administration.
