In this more or less quiet week, concerns that the worsening situation in Turkey could have a contagion effect on the Eurozone, particularly lenders, and other parts of the world grabbed precedent during the last 24 hours. We believe that low volume this week has exacerbated moves in currencies and equity markets.
Global stock markets are rattled as the President of Turkey, Recep Tayyip Erdogan, is running his economy into the ground, raising contagion fear surrounding other European nations. Initially, crude oil was following the stock markets down, but then turned positive on a report from the normally more bearish leaning International Energy Agency, which is warning that as oil sanctions against Iran take effect, perhaps in combination with production problems elsewhere, maintaining global supply might be very challenging and would come at the expense of maintaining an adequate spare capacity cushion.
Investors in Asia largely brushed off the ongoing trade fight between China and the United States, with Shanghai’s blue-chip stocks climbing 2.4%, a move supported by the tech and financial sectors. Solid economic data and possible government intervention through monetary & fiscal policies encouraged investors to take some risk on Thursday.
The S&P 500 and Nasdaq held ground well yesterday after four strong sessions. This was exactly what we discussed needing to see; a healthy consolidation that kept each index within 1% of a record high. Globally, there was a bit more volatility overnight with Europe and Japan in the red while China and Hong Kong have notched solid sessions in the green.
After a sharp slide, the pound has finally caught a bid today. While it is too early to suggest that a low has been hit, today’s rebound is certainly a welcome relief for the pound bulls. The British pound/U.S. dollar (GBP/USD) currency pair has ended a run of five consecutive losses, the GBP/JPY is up after falling six days in a row, while the euro/British pound (EUR/GBP) is back below 0.90 after a sharp four-day rally.
Even in long-term bull markets, you are going to have a day like Wednesday. Crude oil and products crashed down to major support as it was hit with a confluence of headlines and bearish weekly Energy Information Administration data. Fears of the impact of sanctions on China, Iran, Russia and Turkey did not help and another big drop in U.S. gasoline demand has some worried that U.S. consumers were showing resistance to higher pump prices.
Falling in the awkward post-US, pre-Asian session, the Reserve Bank of New Zealand will deliver its quarterly monetary policy statement in just a few hours (21:00 GMT). While the release is functionally equivalent to the Fed’s “live” quarterly meetings when it delivers updated assessments on the economy, the primary difference is that the RBNZ is nowhere near making any meaningful changes to policy; instead, traders will try to “read between the lines” for more insight on how the central bank is leaning for the future.