Market update: Stocks rise globally, Turkish Lira detonates

25 Jul

by Mihály Tatár


Good Morning!


  • Fueled by the solid quarterly company earnings, the moderate but symbolic Chinese fiscal package and the market talk of a monster US GDP data on Friday, stock markets rallied globally (SPX +0.48%, DAX +1.12%, Nikkei +0.35%, Hang Seng +0.80%), with the optimism pushing even commodities higher (WTI 68.70, Brent 73.90 USD, Copper +3%, Zinc +2.4%). To put the stocks move into perspective, the SPX index is now less than 2% away from its historical record high –  an original way to panic on trade war – and showing the unbiased and deep quality of the  ’this tax cut is no good’ articles from the beginning of the year. (To be fair, with the pessimistic shorts now being gradually squeezed out,  it will be tricky to sustain the rally – maybe a renewed infrastucture spending theme would do it for a while – and a single shocking inflation data will stop the dancing. European stocks, in the meantime, keep underperforming (DAX is 7% away from its record high, while Italian stocks, never regenerating from 2008, are 11% off from their May top). Currency trading has been much more muted with traders preparing for the ECB meeting on Thursday (EURUSD 1.1680, ’Mr. Draghi, what’s your take on the Trump currency manipulation comments?’, GBPUSD 1.3150, a tad higher on May overtaking the lead in Brexit negotiations personally to win time), EURHUF 325.80 (the MNB successfully putting traders to sleep). The one exception has been the Turkish Lira – contrary to the textbook thinking market, the Turkish Central Bank refused to raise interest rates, resulting in a brutal 4% Lira weakening within seconds, extending the declines to 44% (!) from mid-2017. (Commentators were clearly shocked: An asset manager called the decision ’mystifying’, and one trader simply described it as ’essentially game over’. The Turkish 10Y yield jumped from 16.80% to 18.70% within hours. The EU better prepares for the renegotiation of the refugee deal, and the breakdown of financial accountability of Turkish banks and companies, among others.)


  • As Juncker was flying towards Washington, Trump already started with his softening tweets (’tariffs are the greatest!’, ’I have an idea for them: Both the US and the EU drop all tariffs, barriers and subsidies’. The latter is especially powerful, since despite the narrative that the EU is a champion of free trade, we know how it is: The EU-Canada trade deal took 10 years to complete, mostly to ensure that things stay untouched with the EU agricultural policy.) This time the EU decided to play the game and announced that it has prepared counter-tariffs on US goods worth around 20 billion USD, in case the US indeed goes after the European car exports. It’s worth noting that according to mainstream opinion, Trump is simply crazy and can not be convinced to see things in a rational way (as one commentator put it, ’the US-European relationship is far more complex and I’m not sure he fully undersands that or cares about the damage he can do’), but this thinking is wrong and leads to false assumptions. The reality is that the ideologists behind Trump look at things from a totally different vantage point – for example, they abhor what they call ’Globalisation 1.0’, essentially the trade dynamics of the last 30 years. (Meaning, Trump doesn’t care at all about Ford’s immediate problems as much as Merkel cares about Volkswagen’s. The goal is the total repositioning of the US economy for the long term.)



Have a nice day,




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