"Can't anybody here play this game?"
President
Trump, with apologies to Casey Stengel.
Thinking himself on a
roll by crashing the Chinese stock market as a sign of success in his trade war
on NAFTA, NATO members, and China and just about everyone else, President Trump
stuck his knife into NATO member Turkey yesterday, and set about carving up the
Lira.
Citing Turkey’s
crashing currency as a reason, President Trump suddenly doubled his import
tariffs on imports of Turkish steel and aluminium. Part of the reason Turkey’s
currency was falling was Trump’s imposition of tariffs in the first place,
followed up by a nasty growing personal fight between Turkey’s President
Erdogan, aka “The Sultan,” and President Trump himself, over who has the
biggest ego and who can act most irrationally. The new higher tariffs merely
add to the pressure on the collapsing Lira.
Unhelpfully, Turkish
firms are deeply indebted to European banks, mostly in Spain, Italy and France.
With the prospect of repayment sinking with the Turkish Lira, the ECB started
to hit the panic button over the issue of contagion. Are Spanish and Italian
banks next in line for depositor bail-ins, is now the big question of the
summer of 2018?
Of course, no one in
their right mind is keeping very much money in Italian banks, due to the
increasing prospect that Italy will soon issue an internal parallel currency to
the euro, though Spanish banks aren’t in very much better condition. Capital
flight from both just got a massive boost yesterday.
As contagion spread
from Turkey into the Latin American emerging markets, the next shoe to drop
fell in Trump’s backyard, the US stock markets. When you have to raise cash you
sell what you can, not necessarily what you want to, and selling liquid US
stocks became the order of the day. A Washington ship of fool’s comes to mind.
Below, how the ECB
began to panic.
S&P 500 logs worst day in 6 weeks as Turkey’s lira crisis spotlights global risks
Published: Aug 10, 2018 5:08 p.m. ET
Dollar index touches strongest level in 14 months as Turkish lira plunges
The S&P 500 on Friday notched its worst daily drop since late June amid a broad global equity retreat that was fueled by a mounting currency crisis in Turkey, which has raised the alarm for possible contagion into other markets.The U.S. dollar DXY, +0.68% viewed as a haven relative to other currencies, muscled to its firmest level in 14 months against major rivals.
The S&P 500 SPX, -0.71% lost 20.30 points to 2,833.28, a slide of 0.7%, marking its third straight down session and the worst one-session slump since June 27, according to Dow Jones Market Data—a statistic that highlights the narrow range the broad-market index has traversed in the past several weeks.
The Dow Jones Industrial Average DJIA, -0.77% fell 196.09 points, or 0.8%, to 25,313.14. Friday was the Dow’s third straight daily decline, as well as its biggest one-day percentage fall since July 11. Friday’s decline helped to push the Dow into negative territory for the week, for a drop of 0.6%.
The Nasdaq Composite Index COMP, -0.67% fell by 52.67 points to 7,839.11, a retreat of 0.7% that scuttled an attempt at an nine-session win streak for the technology-heavy benchmark. Still, the recent series of gains for the index helped it retain a weekly advance, up 0.4%.
Meanwhile, the Russell 2000 index RUT, -0.24% of small-capitalization companies, a gauge that has been resistant to fears of trade wars and the impact of a strengthening dollar on sales, outperformed its larger-cap peers, closing 0.2% lower at 1,686.80.
----The U.S. dollar surged 13% against the Turkish lira USDTRY, +15.9654% According to FactSet data, the lira is down 20% this week, bringing its year-to-date slump to more than 40%.
The move that comes after the European Central Bank expressed concern about the country, where President Recep Tayyip Erdogan was re-elected in a snap vote in June and whose growing power has raised questions about the independence of the country’s central bank.
The lira’s stumble prompted U.S. President Donald Trump to announce a doubling of U.S. tariffs on certain Turkish goods.
More
August 10, 2018 / 10:23 AM /
Erdogan tells Turks to buy plunging lira as Trump doubles metals tariffs
ISTANBUL/ANKARA
(Reuters) - President Tayyip Erdogan told Turks on Friday to exchange gold and
dollars into lira as the country’s currency plunged as much as 14 percent on
worries about his influence over monetary policy and worsening relations with
the United States.
U.S. President Donald Trump
said he had authorised higher tariffs on imports from Turkey, imposing a 20
percent duty on aluminium and 50 percent one on steel.
Trump noted on Twitter that
the lira “slides rapidly downward against our very strong Dollar!”
“Our relations with Turkey are
not good at this time!” he said in an early morning post.
Waves from the crisis spread
abroad, with investors selling off shares in European banks with large exposure
to the Turkish economy.
New Finance Minister Berat
Albayrak - Erdogan’s son-in-law - acknowledged that the central bank’s
independence was critical for the economy, promising stronger budget discipline
and a priority on structural reforms.
The lira sell-off has deepened
concern about exposure to Turkey, particularly whether over-indebted companies
will be able to pay back loans taken out in euros and dollars after years of
overseas borrowing to fund a construction boom under Erdogan.
----The lira briefly fell as much as 14.6
percent — its biggest one-day drop since early 2001 — before paring losses.
Shares of European lenders also dropped, hit by concern about their Turkish
exposure.
Turkey’s sovereign
dollar-denominated bonds tumbled with many issues trading at record lows. Hard
currency debt issued by Turkish banks suffered similar falls.
Meanwhile the cost of insuring
exposure to Turkey’s sovereign debt through five year credit defaults swaps
TRGV5YUSAC=MG has spiralled to the highest level since March 2009, topping
levels seen for serial defaulter Greece GRGV5YUSAC=MG, which has three bailouts
in the last decade.
More
11 August 2018 - 07H20
Turkey's lira crisis: How bad can it get?
----But the haemorrhaging reached an unprecedented intensity in the last weeks as Turkey's ties with the United States strained further and markets questioned their trust in Turkish policymakers, pushing the currency to five against the dollar.
A new bout
of selling Friday on increased strains with the US forced the lira over six
against the dollar for the first time, with the currency at one point shredding
a quarter of its value in a single day.
Economists
say that while the government may be tempted to muddle through the current
situation in the hope the external and economic background improves, the lira's
fall harbours considerable dangers for the economy, in particular the banking
system.
- 'Tight
grip on bank' -
President
Recep Tayyip Erdogan's current dash for growth coupled with unorthodox
pronouncements on monetary policy -- including that lower rates can bring down
inflation -- have put him on a collision course with markets.
The central
bank, nominally independent but never defying Erdogan, appears to have
abandoned the conventional monetary policy of using rates hikes as a tool to
support the currency and bring down inflation.
Erdogan's
"tight grip" on the central bank and the fact "higher interest
rates do no fit with Turkey's economic growth strategy" meant that the
central bank has kept interest rates on hold, Nora Neuteboom, economist at ABN
Amro, told AFP.
-----According to the Capital Economics consultancy, the plunge in the lira risks putting further pressure on the banking sector in Turkey due to the scale of the credit boom and one third of bank lending being denominated in foreign currencies.
"If
some of these vulnerabilities crystalize they could tip the economy into a full
blown crisis," said its economist Yasemin Engin.
US
investment bank Goldman Sachs alarmed investors with an assessment that a
further drop in the lira to 7.1 to the dollar "could largely erode"
the excess capital of Turkish banks.
- 'Diverting
attention' -
As the lira
tumbled in value -- with no breakthrough in sight in the impasse with the US,
sparked by the jailing of American pastor Andrew Brunson -- the government has
remained sanguine with few comments aimed at rallying markets.
The issue
has also largely stayed off the front pages of mainstream Turkish newspapers,
where critical Turkish economists are given little space, leaving social media
as the main forum of debate.
"The
pro-government media is diverting attention by showing movies and series,"
complained Mustafa outside an exchange booth close to Istanbul's Grand Bazaar.
The external
value of the lira is not a prime concern of Erdogan's core supporters, many of
whom have no plans for foreign holidays and readily accept government rhetoric
that economic problems are caused by outsiders seeking to weaken Turkey.
More
August 10, 2018 / 10:06 AM
Euro zone banks punished for Turkish exposure
FRANKFURT (Reuters) - Euro
zone bank shares tumbled on Friday on concerns about their exposure to Turkey
as the lira fell to yet another record low with a defiant government showing
few, if any signs, it is ready to take decisive steps to stabilise the
currency.
A widening rift with the
United States, its main NATO ally, and President Tayyip Erdogan’s grip on
monetary policy under a new powerful executive presidency have helped to drive
the lira down by more than 35 percent this year, a particular worry for Turkish
banks as over a third of their lending is in foreign currencies.
The bank sell-off was
exacerbated by a report in the Financial Times that the European Central Bank
is increasingly concerned about some lenders, particularly BBVA of Spain,
UniCredit of Italy and BNP Paribas of France as they have some of the largest
operations in Turkey among euro zone banks.
The ECB declined to comment.
Sources familiar with its work added that a review has been going on for
several weeks and this was considered a prudent supervisory practice given the
situation. This echoed the FT report, which said that the situation was not yet
considered critical.
Shares in BBVA fell 3.5
percent early on Friday, UniCredit was off 3.1 percent and BNP dropped 3.7
percent, all exceeding a 2.7 percent drop in the euro zone bank index.
BBVA also declined to comment.
Turkey accounted for 373 million euros of its first half net attributable
profit, 14 percent of the group total, suggesting that it may be the most
vulnerable to the country’s market turmoil.
UniCredit, whose Turkish unit
Yapi Kredi is viewed by Goldman Sachs analysts as the most vulnerable in terms
of capital levels, played down its exposure in its recent earnings
presentation. It argued that the country accounted for less than 2 percent of
group revenues and a 10 percent fall in the lira would affect its CET1 ratio -
capital that must be set aside as a buffer against financial shocks - by only
around 2 basis points. It declined to comment on Friday.
However, a report by Credit
Suisse said Turkey remained a risk for Italy’s biggest bank by assets as the
depreciation of the lira could further hit its core capital - which came in
lower than expected at the end of June. BBVA, which reported a lowly CET 1
ratio of 10.8 percent at the end of the first half, also said a 10 percent
slump in the lira would shave 2 basis points off its core capital.
Data from the Bank of
International Settlements indicate that banks’ exposure to Turkey is about $82
billion (£64.17 billion) in the case of Spain and $17 billion for Italy,
relatively minor figures given that top euro zone banks have combined total
assets of more than 20 trillion euros.
More
In other news, Tesla
and Musk got sued over a dubious twit. China kept up the America bashing in the
media. That this all ends badly is a given, the only question is when and how.
Winning in a trade war is a relative term. In reality, not all losers lose equally,
nor at the same time.
But if Trump’s
reckless trade war triggers the next global slump, it’s better to be a creditor
nation than a debtor.
August 11, 2018 / 12:03 AM
Tesla CEO Musk accused in lawsuit of defrauding shareholders
(Reuters)
- Tesla Inc and Chief Executive Elon Musk were sued on Friday by an investor
who said they defrauded shareholders in a scheme to manipulate the electric car
company’s stock price, starting with Musk’s Aug. 7 tweet that he might take
Tesla private.
In a
proposed class-action complaint filed with the federal court in San Francisco,
Kalman Isaacs said the scheme was conducted in part to “completely decimate”
short-sellers, eventually leading to an inquiry by the U.S. Securities and Exchange
Commission.
The class
includes investors who bought Tesla shares as they were rising in the wake of
Musk’s tweet. The share price later fell.
August 11, 2018 / 5:33 AM
Chinese media keep up drumbeat of criticism of U.S.
SHANGHAI (Reuters) - China’s state media continued a barrage
of criticism of the United States on Saturday as their tit-for-tat trade war
escalated, while seeking to reassure readers the Chinese economy remains in
strong shape.
Commentaries
in the People’s Daily, China’s top newspaper, likened the United States to a bull
in a China shop running roughshod over the rules of global trade and said that
China was “still one of the best-performing, most promising and most tenacious
economies in the world.”
The
commentaries come as trade tensions between the two countries intensify. China
said this week it would put an additional 25 percent tariffs on $16 billion
worth of U.S. imports in retaliation against levies on Chinese goods imposed by
the United States.
One
commentary accused the United States of “rudely trampling on international
trade rules” and not taking into account China’s lowering of tariffs and
continued opening of its economy, among other things.
“People of
insight are soberly aware that so-called ‘America first’ is actually naked
self-interest, a bullying that takes advantage of its own strength, challenges
the multilateral unilaterally, and uses might to challenge the rules,” it read.
Another
commentary argued that the Chinese economy was stable and was expected to
remain so.
In the
second half of this year, “comprehensive deepening of reforms will continuously
produce benefits.” It said China could take steps to boost domestic demand
while continued to cut corporate taxes and fees.
With these
and other policies, “the Chinese market will show an all-new charm,” the
commentary said.
A separate
piece in the People’s Daily quoted vice agriculture minister Han Jun saying
that if a trade war broke out, many other countries were willing and
“completely able to replace American agricultural products’ share of the
Chinese market.”
It also
quoted the vice minister as saying that the impact of American tariffs on China
would be “extremely limited”, but warned that were a trade war to escalate, the
U.S. agriculture sector would feel its effects.
Earlier this
week, Chinese state media accused the United States of a “mobster mentality” as
it moved to implement additional tariffs on Chinese goods. Beijing had all the
necessary means to fight back, the reports said.
August 11, 2018 / 12:13 AM
China says business ties with Iran no harm to any other country
BEIJING (Reuters) - China’s business and energy ties with
Iran do not harm the interests of any other country, the country’s Foreign
Ministry said, after U.S. President Donald Trump said companies doing business
with Iran would be barred from the United States.
China has
already defended its commercial relations with Iran as open and transparent as
U.S. sanctions on Iran took effect despite pleas from Washington’s allies.
In a
statement released late on Friday, China’s foreign ministry reiterated its
opposition to unilateral sanctions and “long-armed jurisdiction”.
“For a long
time, China and Iran have had open, transparent and normal commercial
cooperation in the fields of business, trade and energy, which is reasonable,
fair and lawful,” it said.
“This does
not violate United Nations Security Council resolutions or China’s promised
international obligations, nor does it harm the interests of any other country,
and should be respected and protected,” the ministry added.
Using
sanctions at the slightest pretext or to threaten anyone won’t resolve the
problem, it said.
“Only
dialogue and negotiations are the true path to resolving the issue,” the
ministry added.
Finally, Europe’s
farmers get to tally up the cost of Europe’s summer of record heatwaves and
drought.
August 10, 2018 / 2:42 PM
Drought slashes EU wheat, export surplus to be cut
HAMBURG
(Reuters) - Drought and a heatwave that scorched fields in northern Europe may
cut the European Union’s wheat export surplus and the bloc will need to consume
more of its own grains, experts said on Friday.
French analysts Strategie
Grains forecast a 10 percent smaller EU soft wheat harvest this year, with northern
areas particularly hard hit. EU wheat prices have hit over five-year highs on
crop concerns. [GRA/EU]
“Wheat exporters like Germany
and Scandinavia may need imports from the rest of the EU this year, especially
for animal feed wheat,” one German trader said. “The terrible harvest in north
Europe is good news for rival wheat exporters like Russia, Ukraine and the
United States.”
Some wheat from EU Black Sea
exporters such as Romania is likely to stay in Europe rather than being shipped
to the Middle East, the trader said.
In Germany, the EU’s
second-largest producer, the winter wheat crop is expected to fall 19.9 percent
on the year to 19.2 million tonnes after the highest July temperatures since
records began in 1881. Harvesting is finishing.
“Germany is usually one of the
EU’s biggest wheat exporters but will swing to an importer this season
especially for animal feed,” another German trader said. “About 800,000 tonnes
of feed wheat have already been bought, mostly from Romania and Bulgaria, and I
think more could be bought.”
In France, the EU’s largest
producer, harvesting is over. Torrential rain and heatwaves are expected to
have cut the crop, although damage was seen as less severe than in northern
Europe.
Crop estimates are generally
between 33 and 35 million tonnes, down from 36.6 million last year, while
milling quality was generally good.
----Poland’s crop will fall about 12
percent to roughly 9.9 million tonnes, Wojtek Sabaranski of analysts Sparks
Polska said. Harvesting is well advanced but crop quality varies greatly,
Sabaranski said.
Britain’s winter wheat harvest
was nearly 60 percent complete on Aug. 7, well ahead of normal, the Agriculture
and Horticulture Development Board said.
Trade estimates for the UK
wheat harvest range between 13.5 million and 14.0 million tonnes, down from
14.8 million last season.
“There have been no real
issues with grain quality and the clear dry conditions during harvest mean that
crops have been harvested when ripe, with no weather delays,” the board said.
The
law of unintended consequences refers to how economic decisions may have
effects that are unexpected. Usually, this refers to an economic law which
distorts consumer or producer behaviour in a way that is not expected.
For
example, a law may be implemented with the best intentions to help a group,
but, if there are unintended consequences, they could end up being worse off.
The monthly Coppock Indicators finished July.
DJIA: 25,415 +213 Down. NASDAQ:
7,672 +259 Down. SP500: 2,816 +166 Down.
All
three slow indicators moved down in March and have continued down ever since.
For some a new bear signal, for others a take profits and get back to cash
signal.
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