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Weekly Update

Market Summary

A growing currency crisis in Turkey rattled U.S. and international equity markets this past week on fears of contagion and spill-over effects to other markets, such as Eurozone banks and other emerging market nations. The S&P 500 and Dow Jones indices ended down -0.2% and -0.5%, respectively, ending five weeks of consecutive positive returns, while the Nasdaq managed to end the week in positive territory with a 0.3% gain. The Russell 2000, a U.S. small cap equity index, continued to outperform with a 0.8% return for the week due to its relative insulation from international turmoil.

Following President Trump’s Friday announcement that he would double steel and aluminum tariffs on Turkey to 50% and 20%, respectively, the Turkish lira fell to a record low this weekend, down 40% year-to-date against the U.S. dollar. Meanwhile, Turkish bond yields have jumped significantly, thereby reducing Turkey’s ability to cover its debt obligations and bringing the nation to the brink of a financial crisis.

The effects of the Turkish currency collapse are beginning to spill over into broader markets following reports from the European Central Bank citing its concerns of European bank exposure to the Turkish lira. There are also concerns that this event could trigger a flight to the U.S. dollar, due to the nation’s currency and assets being viewed as a relative safe haven, which would in turn harm access to capital for other emerging markets around the globe.

U.S. equities have remained broadly resilient so far this year in the face of geopolitical tensions, rising rates, and political uncertainty ahead of midterm elections. The offset has largely been attributed to strong corporate earnings results boosted by tax reform stimulus and inflation being held in check. However, looking ahead there are growing concerns that a global slowdown will reduce demand for U.S. goods abroad as fiscal stimulus gradually wears off, creating mounting pressures on U.S. corporate profits.

Economic Highlights

  • Inflation: The US Consumer Price Index (CPI) rose 2.9% Year-over-Year (YoY), consistent with the June reading. However, core CPI, which doesn’t include food and gas prices, rose to 2.4% YoY, its highest rate since September 2008.
  • Commodities: WTI crude oil fell to a three-week low of about $67/barrel this past week due to threats that China considered imposing additional tariffs on US imports, but oil markets steadied once the exemption of crude oil was announced. Despite the recent down trend, WTI crude oil prices are still up almost 12% year-to-date.

US Economy - The Week Ahead

Tuesday, 8/14/2018

U.S. Import Price Index Month-over-Month Growth – Consensus Estimate: 0.05%, Prior Month: -0.40%
U.S. Export Price Index Month-over-Month Growth – Consensus Estimate: 0.10%, Prior Month: 0.30%

Wednesday, 8/15/2018

Industrial Production (Month-over-Month) – Consensus Estimate: 0.30%, Prior Month: 0.62%
Labor Productivity (Quarter-over-Quarter) – Consensus Estimate: 2.5%, Prior Quarter: 0.4%
Unit Labor Costs (Quarter-over-Quarter) – Consensus Estimate: 0.0%, Prior Quarter: 2.9%

Thursday, 8/16/2018

Initial Jobless Claims – Consensus Estimate: 216,000 (1.4% WoW), Prior Week: 213,000 (-2.3% WoW)
Housing Starts – Consensus Estimate: 1.26 Million (6.1% MoM), Prior Month: 1.173 Million (-12.3% MoM)

Friday, 8/17/2018

Leading Economic Index (Month-over-Month) – Consensus Estimate: +0.4%, Prior Month: +0.5%
University of Michigan Consumer Sentiment Survey (Preliminary) – Consensus Estimate: 97.8 (-0.1% MoM), Prior Month: 97.9 (0.8% MoM)

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