Risk appetite drops as Turkish lira resumes its descent

After a subdued start the FTSE grinded lower across the session with buyers in short supply as Brexit concerns and Turkey remained in the spotlight. 

News that the US is prepared to levy further sanctions on Turkey if President Erdogan refuses to release the American pastor at the centre of the geopolitical spat, sent the Turkish lira southwards once again. The lira falling by more than 7% at one-point shows that the Turkish crisis is far from over. Whilst financial support from Qatar has helped stabilise the situation, Turkey remains a very real risk for the markets. 

The declining lira brought risk aversion back to the markets sending the safe haven yen higher and equities across the globe lower into the weekend. Contagion fears have returned and banks across Europe are on the back foot over concerns of exposure to Turkey.With neither the US or Turkey showing signs of willingness to back down over the arrest of the pastor, its difficult to see how this altercation can end without causing large market disruption. With concerns riding high as to how the geopolitical tensions could unfold over the weekend, traders are preferring to sell out of positions than risk a gap lower on Monday.

Despite concerns over Turkey, the euro was managing to move higher versus the dollar, supported by in line inflation data and a weaker buck. Eurozone inflation increased 2.1% year on year whilst core inflation remained constant at 1.1%.

US Consumer Confidence hit 11 month low

The dollar was pausing for breath on news that US consumer sentiment unexpectedly dropped in August. Analysts had been expecting sentiment, as measured by the University of Michigan confidence to lift to 98 from 97.6 in July. However, instead consumer sentiment decreased to 95.3, its lowest level since September 2017. The fall in confidence is concentrated within those at the lower end of the income bracket, who are feeling the effects of the increase in prices, suggesting that their tolerance for overshooting is limited.

With Brexit negotiations back in full swing, concerns over a no deal Brexit are still rife. Headlines are still pointing towards a 50 : 50 chances of crashing out with no deal, which is limiting any upside in the pound versus the weaker dollar.