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  • All was quiet last week until Friday, when concerns over the crisis in Turkey triggered worries about contagion to broader emerging markets and eurozone banks. There is a fair amount of data to keep investors busy this week but it’s likely that the focus for markets will remain on political and economic developments in Turkey.

    Last week

    ​- Concerns over Turkey drove stock markets

    - Turkish lira plunged 20% vs the US dollar last week

    - Bond markets rallied as investors sought safety

    - Currencies were volatile with the pound sinking to a one-year-lowCurrencies were volatile with the pound sinking to a one-year-low

    This week

    - The focus for markets will remain on Turkey. In addition to that there is a fair amount of data due out. 

    - Chinese data is out on Tuesday, with industrial production, retail sales and fixed asset investment all being released.

    - In the UK, we have employment data on Tuesday, with inflation data out on Wednesday: CPI is expected to tick up to 2.5%.

    - There is also key data out of the US, with retail sales, industrial production and home building data all being released on Wednesday.

    Last Week's Highlights

    ​- Stock markets were fairly quiet and slowly grinding upwards until Friday, when concerns over Turkey prompted a sell-off in emerging market equities which spread to other stock markets. Global stocks were up 1.5% for the week, but this was largely due to sterling weakness; on a currency hedged basis they finished the week down 0.34%. Materials were the worst performing sector and Brazil was one of the worst performing markets; down 7% on the week. This was of course dwarfed by Turkey’s decline, with its stock market down 19.6% over the week which takes losses for the year to 48% (in GBP).

    - Although over-shadowed by events in Turkey, US earnings season continued to rumble on successfully. We now have 91% of the S&P 500 companies having reported, with 79% having beaten on earnings numbers and 72% having beaten on sales. This keeps things on track for a Q2 growth rate of 24.6% which would mark the second highest rate of earnings growth since Q3 2010 (when it was 34.1%).

    - Bond markets did well last week, as yields fell towards the end of the week when investors rushed for safety as concerns around Turkey rose. UK government bonds finished the week up 0.7%, with US Treasuries up 0.5%. Local emerging market bonds (where Turkey makes up 4% of the index) were down 2.1% which takes their performance for the year to -4%.

    - Turkish assets remained under pressure, in part because US-Turkey relations continued to deteriorate. The lira plunged to an all-time low versus the US dollar. In retaliation for Turkey’s jailing of an American pastor, President Trump announced in a tweet that the US was doubling its tariffs on steel and aluminium imports from the country. The Turkish lira dropped 21% vs the US dollar last week and is now down 44% vs the US dollar for the year. Turkey’s plight is currently having more impact on bonds than equities; Turkey forms 4% of the emerging market bond index and just 1% of the emerging market equity index. European banks have however been knocked off course, over fears of their exposure to the Turkish financial system.

    - China’s currency (the RMB) slid for a ninth straight week as trade tensions escalated between not just China and the US but Turkey and the US. The RMB’s ninth weekly decline marks the currency’s longest losing streak since China adopted its current foreign exchange regime in 1994.

    - The pound hit a one year low, reaching $1.27 on Friday as concerns intensified over a “no-deal” in the Brexit negotiations. It also reached its lowest level versus the euro since October last year. This marked the fifth straight weekly losing streak for the pound, with the most recent leg-down being prompted by Trade Secretary Liam Fox saying the odds of leaving the eurozone without a deal were 60%.

    - Tesla shares had some notable moves last week. They jumped 10.93% on Tuesday, after Elon Musk tweeted that he had arranged financing and was considering taking the company private in what would be the largest leveraged buyout in history. The stock dropped back over the remaining few days to finish the week up 4.2%.  

    Asset Returns

    Equities & Oil: returns are all in base currency, save for Global and Emerging which are in GBP. Bond returns are all shown in GBP. Gold in GBP. Source Bloomberg.

    Turkey tumbling: The Turkish lira fell 20% last week and is now down almost 45% versus the US dollar this year

    Source: Psigma / Bloomberg.

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