Weekly Overview (06 – 10 August 2018): Investors flee Turkey en masse as Turkish lira destabilises

Turkish crowd waving national flags

After going strong for years on end, Turkey’s economy is now collapsing under its own weight, scaring foreign investors and causing a national crisis. So, what exactly happened there?

The reason is deceptively simple—the country relied on foreign investments for far too long, yet it imported way more products than it actually exported. As a result, according to David McKnight, a financial adviser based in Puerto Rico, “Turkey owes so much money to so many different banks, that they risk a potential contagion.”

The economic situation only deepened after a series of statements made by president Recep Tayyip Erdogan where he urged the central bank to keep interest rates unchanged. Against all logic the bank followed the president’s advice, devaluing the New Turkish lira by an additional 18% as worried investors went on a currency sell-off spree.

The final blow to the Turkish currency was delivered by President Donald J. Trump who doubled tariffs on steel (50%) and aluminum (20%) on Turkey due to the country’s continued practice to import oil from Iran. Of course, this decision had an immediate negative impact on US stocks as well which declined by a fair amount on Friday.

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UK’s GDP enjoyed an increase of 0.4% throughout the second quarter of 2018. According to the official report, the growth was fueled by retail services which saw a notable boost thanks to the good weather. Production, however, continued its downward trend, with the most notable falls being reported in the manufacturing and energy production sectors.

In its Monetary Policy report, the Reserve Bank of Australia noted that the country remains on track towards achieving its target of lower unemployment and higher inflation over time. In this statement, both CPI and underlying inflation were cited at about 0.5% for the quarter, and the bank expects CPI to increase by around 2.25% in both 2019 and 2020, and for inflation to rise by the same amount in 2020.

A similar sentiment was resonated in New Zealand’s Monetary Policy statement. The official cash rate set by the Reserve Bank of Zealand remained at 1.75%, with the bank expecting to leave the rate unchanged throughout 2019 and 2020.

In its CPI month-over-month report released on Friday, the United States revealed that its Consumer Price index has increased by 0.2% in July alone, building up from a previous increase of 0.1% in June. According to the U.S. Bureau of Labor Statistics, the all items index soared by 2.9% for the past 12 months.

Canada’s unemployment report showed that the country’s jobless rate has reached four-decade lows in July due to stronger-than-expected employment gains. The rate declined from 6% to 5.8% for the month of June, with the economy adding extra 54,100 jobs. Although certainly positive, this news means that Canada is expected to reach its employment capacity relatively soon.

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Thomson Reuters reported adjusted 17 cents EPS for its latest quarter, which exceeded Wall Street consensus by 6 cents. Revenue also topped forecasts and the company expressed its confidence in delivering a “solid” full-year performance.

Microchip Technology shared an adjusted quarterly profit of $1.61 per share, or 13 cents more than what analysts predicted. The chipmaker also beat Wall Street revenue predictions and raised its quarterly dividend from 36.6 cents to 36.4 cents per share.

Viacom beat analysts’ expectations by reporting earnings of $1,18 per share, or 13 cents more than what Wall Street had predicted. While the revenue confirmed the initial forecast, that number came 3.7% short of meeting the revenue for the same period in 2017 due to decreased ad sales and cable fees.

Booking Holdings crushed consensus EPS estimate of $17.34 by reporting profits of $20.67 per share. Revenue also topped forecasts, but the company failed to give assuring guidance on current-quarter earnings, revenue, and room night bookings.

21 Century Fox reported EPS of 57 cents, or 3 cents above analysts’ expectations. Revenue surpassed forecasts as well, mainly due to a boost in cable distribution fees and the immense success of its “Deadpool 2” movie.

Goldman Sachs downgraded Intel to “sell” from “neutral” due to repeated delays in transitioning to next generation (10nm) chip process technology. At the same time, the investment bank and financial services provider upgraded AMD to “neutral” from “sell” citing the chip maker’s surprising 80% rally for 2018.

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Last week, the Dow Jones Industrial Average declined by 175.04 down to 25,334.19, the S&P 500 was down 14.98 at 2,838.60, while the NASDAQ declined by 27.87 points to reach 7,863.91.

Gold showed resistance near the $1,200 an ounce, with the decline in price slowing down as the precious metal approaches the “psychological” price threshold. Despite that, analysts unanimously agree that gold is on a weekly loss streak since 2016.

Silver fell 0.4% to $15.384 an ounce, platinum remained firm at $832.65 an ounce, and palladium declined 0.4% to $904.95 an ounce.

The Canadian dollar maintained a strong position against all major currencies with the exception of the US dollar. The Loonie is expected to range against the USD in values between 1.3042 and 1.3123.

The Sterling continued to weaken against the US dollar despite positive economic data releases. The Euro is expected to range against the USD in values between 1.1432 and 1.1536.

The Australian Dollar reversed most of its recent gains against the Greenback by opening at 0.7373 on Friday. The Aussie is expected to range against the USD in values between 0.7281 and 0.7380.

The New Zealand dollar is expected to range against the USD in values between 0.6571 and 0.6622.

The New Turkish lira plummeted to 6.75 against the Greenback on Friday, or 14% in intraday trading and 41% since the beginning of 2018.

For a comprehensive list of all important financial events for this past week, make sure to visit our complete trading news report.