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Turkey gets roasted

Bloomberg
As the Turkish tumult continues and Russia’s rout rolls on, U.S. assets stay relatively sanguine. Here are some of the things people in markets are talking about.

Turkey, Russia Selloffs Worsen

The Turkish lira tumbled, sinking to a fresh record low as concerns about souring relations with the U.S. and runaway inflation outweighed the nation’s plans to stem a market rout. The lira sank more than 5 percent, while the iShares MSCI Turkey ETF extended a two-day plunge. The ruble sank for a second day as well, as a fresh round of U.S. sanctions against Russia deepened concern about what could be targeted next. Investors who had been building long positions in the currency earlier in the summer rushed for the exit, and analysts at Citibank said it looks like traders were already pricing in a worst-case scenario of sanctions on banks and new sovereign debt.

U.S. Markets Defy Global Chaos

The S&P 500 has been edging back toward its January peak, and the U.S. Treasury just auctioned a record amount of 10- and 30-year debt with relative ease. Looking at American markets, there’s little sign of the angst that’s been roiling emerging economies. And some American assets may even benefit from the volatility abroad. To the likely dismay of President Donald Trump, the dollar is widely seen as a winner should tit-for-tat protectionist measures push investors to seek a haven. That pattern was at work on Thursday as Treasuries and the greenback advanced. The S&P 500 was in the green most of the session, only to fade into the close and finish down 0.1%. Wall Street’s biggest bull sees the S&P rising 12 percent by year-end.

Equity Angst Grows in China

Chinese stocks haven’t been this volatile in years as traders struggle to decide whether the $6 trillion market has bottomed out. Buffeted by crosscurrents ranging from the trade war and rising defaults to monetary stimulus and cheapening valuations, the Shanghai Composite Index has recorded seven straight swings of 1 percent or more — the longest stretch since Chinese markets crashed in 2015. Intraday moves in the index have grown the most extreme in 30 months, while the country’s market capitalization fluctuated by at least $97 billion for six consecutive trading sessions through Wednesday. Steven Leung, an executive director at Uob Kay Hian (Hong Kong) Ltd., said: “In these circumstances, lots of investors in China have turned into short-term investors.”

America’s Growing Crude Clout

The removal of U.S. crude from goods targeted by Chinese tariffs is a sign that America has become too big to ignore in the oil market. Less than two months after threatening to impose levies on imports of U.S. crude, the world’s biggest oil buyer has now spared the commodity. Only fuels such as diesel, gasoline and propane will be hit with duties on Aug. 23. That’s after the nation’s buyers, including top refiner Sinopec, began shunning American supplies to avoid the risk of tariffs. China’s original plan to target U.S. crude came at an inopportune time for the country’s buyers, with Sinopec’s trading unit embroiled in a dispute with Saudi Arabia and amid supply disruptions from Iran and Venezuela. “The U.S. has been and will remain the main source of incremental crude production globally,” said Den Syahril, an analyst at industry consultant FGE.

Coming Up…

It’s a busy day for economic data, with Japan’s second-quarter GDP report topping the agenda. The country is expected to post a rebound from the first quarter’s contraction. The RBA will release its quarterly statement on monetary policy, and China may report money supply figures. We will also see Singapore retail sales, Hong Kong GDP, and industrial production for Malaysia and India. In the U.S. the CPI report looms large.

What we’ve been reading

This is what caught our eye over the last 24 hours.

And finally, here’s what David’s interested in this morning

To be honest, Japan wage inflation is not something many people pay attention to, especially outside the country. Nothing interesting ever happens. So you may have missed that bizarre release midweek, where the numbers suggest a statistical aberration-type revival in June. Labor cash earnings grew at the fastest pace in 21 years, with average monthly earnings rising 3.6%. Juxtapose that against the two-decade average of -0.5% and it’s like we’re talking free-flow-Dom-and-Cristal kind of bling here. But seriously, is this worth popping open a bottle of pricey bubbly?

The take from Bloomberg Economics is that it’s clearly a positive. Equally though, they warn over its sustainability. Japan Inc.’s been raking in high profits so they’ve decided to share the love by giving out big bonuses, which went up 7 percent year on year. Unfortunately it’s also in that same number where the problem lies. Companies awash with cash are choosing to mostly reward employees with one-time bonuses rather than permanent increases in monthly paychecks. These commitment issues to higher fixed costs shed a light on the Japanese economy’s old ghosts — the long-term outlook just isn’t convincing enough. Dollar-yen 10-year forwards are pricing in an exchange rate all the way down to 80. The spot is at 111. What does that tell you about future inflation? Anyway, preliminary second-quarter GDP comes out ten minutes before the Tokyo cash market opens this Friday.

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