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Article / 19 July 2016 at 11:00 GMT

Daily Shot: Turkish stocks, bonds, lira whacked by failed coup

TradingFloor.com Team / Saxo Bank
Denmark
  • Turkish lira recovered some of Friday's losses
  • Turkish equities market closed down 7%, biggest one-day drop in years
  • Selloff in Turkish bonds less drastic
  • Rating agencies are looking at potential downgrades of Turkey's debt to junk
  • Venezuela's situation deteriorates further as inflation spirals out of control
  • ECB's corporate bond purchases are moving along
  • Most economists expect no policy change from this week's ECB meeting


By Walter Kurtz*

Once again we begin with emerging markets as we observe the reaction to the failed military coup in Turkey.

The Turkish lira partially recovered Friday's losses (chart shows US dollar giving up Friday's gains against the lira). 

USDTRY
Source: Investing.com

The Turkish stock market closed down 7%, the largest one-day decline in years. The market did find a bid at the end of the trading day, however.

Turkish stock market
Source: Investing.com


In dollar terms, the losses were considerably worse, although USD investors are still up on the year. 

MSCI Turkey ETF
Source: iShares


While Turkish bonds took a sizeable intraday hit, on a relative basis, the selloff wasn't drastic. 


Turkey 5-yr govt bond
 























Source: Investing.com 


Deutsche Bank points out that up until this point, the overall Turkey fundamentals have been improving. Now, however, the rating agencies are looking at potential downgrades of sovereign debt to junk levels.

Deutsche on Turkey
 







































Source: @joshdigga 


The summary below was the forecast for Turkey's central bank action prior to the coup. Will the cut be deeper now?

Turkey rate expectations Source: Goldman Sachs 


Aggressive monetary easing will likely weaken the lira further, raising inflation risks.

TRY weakening risks Source: Credit Suisse, @joshdigga 


The South African rand, other EM currencies recovered most of the Turkey-related losses. 

USDZAR
 













The chart shows the US dollar giving up Friday's gains against the rand
Source: Investing.com


As an aside, the S&P500 futures fully recovered Friday's dip... and then some.

SP500 futures Source: Investing.com 


Brazil's government bond yield declined further as foreign fixed-income investors move in.

Brazil yields
 






























Source: Investing.com


Wage growth in Poland accelerates. As a result, the nation's deflationary pressures should be easing.

Polish wage growth
Source: Investing.com


Speaking of Poland, here is one reason for the nation's vulnerability to Brexit - remittances from the UK. 

Polish-UK payments
Source: ‏@lucy_meakin, @michaelwinfrey


Turning to China, the Tier-1 cities housing prices seem to be peaking.

China housing price inflation Source: ‏@EMgist 



According to Tom Orik (Bloomberg), "China GDP sector breakdown shows the bricklayers [construction] saved growth from the stockbrokers [financial services], again."

China bricklayers offset financial sector decline Source: ‏@TomOrlik  


China's government spending continues to rise in order to cushion the slowdown in the private sector activity.

China govt spending cushions slowdown Source: ‏@GaveKalCapital


The situation in Venezuela continues to deteriorate as inflation spirals out of control. 


Venezuela situation deteriorates Source: @IanTalley, WSJ


Venezuela's astronomical inflation
 
-----


























Source: @IanTalley, WSJ



The latest inflation report from New Zealand surprised to the downside, strengthening the case for another near-term interest rate cut. 

New Zealand CPI
 Source: Tradingeconomics.com, Statistics New Zealand


The kiwi dollar took a hit as a result.

NZDUSD
Source: @barchart 


The yen continues to weaken, now giving up most of the Brexit-related gains. Bets are being placed on increased stimulus.

JPY surrenders Brexit gains
Source: @barchart 


Turning to the Eurozone:

The European Central Bank's corporate bond purchases are moving along. The ECB just released the names of the corporate bonds it bought. As expected there are quite a few non-bank financials. 

ECB bond purchase programme
 



— 


















Source: ECB 

ECB bond purchase programme
 



















































Source: ECB, Zero Hedge 


Most economists expect no change in policy from this week's ECB governing council meeting. 

ECB rate expectations
Source: @business, ‏@acemaxx 


Economists reduced their 2017 Eurozone growth forecasts after Brexit.

Economists cut GDP growth forecasts after Brexit
Source: ‏@MxSba


Turning to Food for Thought:


According to the Fed, US "public transit use was down almost 4 percent in April from a year earlier". Cheap gasoline?

US public transport usage falls
 Source: Federal Reserve Economic Data


How would Americans react to a presidential candidate who is an atheist? 

Food for Thought
 

























Source: Pew Research, h/t Yana 



— Edited by John Acher

* Walter Kurtz is a pseudonym

** This is an abridged version of the Daily Shot. To subscribe to the full version, link to the Daily Shot and select the appropriate command. E-mail addresses are never shared with anyone.is head of commodity strategy at Saxo Bank

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