Dont take your eyes off US data

Peter A Rosenstreich Swissquote Bank Ltd

American economic developments are as critical as US-Turkey relations. Today’s report on retail sales is expected to show a 0.4% monthly rise in July. Consumer fundamentals continue to improve, while businesses are driving on domestic demand. Amazon’s Prime Day sale lasted six-additional hours, boosting upside expectations. Spending on food services has risen steadily, industrial production is expected to rise 0.3% monthly in July, manufacturing output excluding autos should improve after a 0.3% rise in the prior month. While President Trump’s erratic trade policy has weighed on manufacturers, demand has firmed, suggesting growth will improve. Net-net: we expect further monetary tightening, which will follow through into treasury yields.

Markets are stable today: sentiment remains cautions, but for now TRY can breathe relief. USD/TRY fell sharply to 5.88, suggesting a coordinated action. The probability of a broader contagion, specifically into Europe, has fallen as financial institutions have time to clean their balance sheets and trade out of worrisome positions. Turkey might have been squarely in international markets, but with rising inflation and rate hikes ahead, USD strength is seeking unresponsive currencies. Central banks with weak foundations and policies unwilling to accept realties will come under pressure. It’s clear which direction the US economy and rates are heading, making USD carry and easy trade.

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Author

Peter A Rosenstreich

Swissquote Bank Ltd

Peter Rosenstreich is Swissquote Bank’s Head of Market Strategy and manages the global strategy desk; he has held various positions in several banking institutions in the United States, Europe & Asia.

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