Everyone hikes, Turkey cuts

The Norwegian central bank raised the interest rates by 50bp yesterday and said that there will be a similar move in September, to tackle the soaring inflation in Norway. The Philippines hiked by 50bp as well, to cool inflation. That was the fourth rate hike this year in Philippines. The Federal Resevre (Fed) minutes released this Wednesday showed that the US will continue raising the rates and tightening the monetary conditions to bring inflation back toward the 2% level in the US. The European Central Bank (ECB) board member Isabel Schnabel said that the eurozone inflation outlook has failed to improve since the rate hike in July and that she will favour another large interest rate hike next month, even as recession risks harden. But Turkey cut its rate by 100bp yesterday, although consumer prices rose 80% year-to-date, and near 180% since a year.  

The USDTRY jumped past the 18, although the selloff remained under controlled because of central bank intervention.  Yet, the central bank’s reserves fell to 20-year level lows this summer. The 5-year CDS rate, which was cooling since a month, spiked higher again, and investors know the situation is not sustainable. The lira is a time bomb, but no one knows when the bomb will explode. 

In FX

The dollar index jumped near 3% since a week or so, and the major peers are coming under a decent downside pressure as well. The EURUSD is headed toward parity, again, as Cable slipped below the 1.19 mark this morning, even though the scary inflation data released earlier this week boosted the expectation for larger rate hikes in the UK moving forward. The negative breakout in Cable points at further sales in sterling, and there is potential for a deeper dive toward the 1.15 mark.  

In Japan, consumer prices rose to the highest levels in almost eight years, to 2.6% on yearly basis, due to the surging energy costs and the weakening yen. The broad-based rally in the US dollar sent the dollar-yen above the 136 level, but the rising inflation will likely get the Bank of Japan (BoJ) to take some precautions before things get out of control in Japan, as well.  

Elsewhere

Gold extended losses to $1750 on the back of a stronger US dollar, while crude oil rallied near 4% yesterday. News that the US crude inventories fell 7 million barrels last week, versus a 300’000-build expected by analysts helped pushing the price higher, as the latest data boosted the hope that demand remains robust despite the economic slowdown worries.  

Else, the latest data showed that the existing home sales declined in the US, but the Philly Fed manufacturing index came unexpectedly stronger. Jobless claims also fell more than expected last week, defying those calling for recession in the US. As a result, US equities closed the session slightly in the positive, after brushing off the Fed hawkishness, and the disappointing Target earnings released a day earlier.  

And interestingly, Home Depot and Lowe’s said at this week’s earnings call that despite the slowing home sales in the US, and rising inflation, Americans continued spending on building material and higher-end appliances in the Q2, and that they don’t necessarily expect a cool down in sales. Though mixed, this week’s retailer results were also, mostly, better-than-expected. 

Finally, the Bed Bath and Beyond trade is certainly over, on news that Ryan Cohen sold his entire position and stepped out. The shares dived 20% yesterday, and another 44% in the afterhours trading. It was fun, but it’s certainly time to look for the next winner!