Home / Blog / Market Analysis / Markets Morning - Worries about Turkey stabilise but materialise for China, stocks down, USD stable

Markets Morning - Worries about Turkey stabilise but materialise for China, stocks down, USD stable

Market Analysis /
Greg McKenna / 16 Aug 2018

Welcome to my daily Markets Musings.

You’ll see things are different from now on. That’s because the full note was approaching 2,000 words some days and I’m breaking it up into a number of reports on the Axi Blog each day now.

That way traders can subscribe to the Axi Blog easily and then cherry pick the yarns and markets of interest 

Feedback always welcome


Market Summary (7.45 am Thursday August 16)

Turkey couldn’t really get US stock traders attention this week – not properly anyway.

But the big fall in Tencent and the funk in Chinese and Asian stocks yesterday certainly seems to have captured their imagination in New York trade overnight. Or perhaps awakened a few nightmares about the slowdown in China.

That’s certainly the angle I see as dominating given the carnage on base metals markets and the absolute belting global miners and emerging market stocks have taken in the past day.

This morning copper is down 3.6% in HGc1 terms to $2.5795 (nicely done Peter L Brandt who called this week’s back) other base metals are lower too while BHP lost more than 5% in overnight trade, Glencore lost about the same amount, Vale is down 4%, Anglo American is down a whopping 6% and Rio is off and almost benign 3.3% in London.

This is what I mentioned the other morning. A crisis isn’t a real crisis unless stocks go offered and get a little funky.

A so it is that while the Turkish Lira stabilised after Qatar curried favour (it’s trying to find someone in the region to be friends with) with a $15 billion investment in Turkish banks and finance, and while the USD has stabilised against most majors – except the Yen which is naturally stronger – the ructions in China stocks, the collapse in the Yuan to 6.93/94, depending on whether its on or offshore, has weighed on global equity market sentiment.

That saw Europe fall across the board with the FTSE 100 off 1.5%, the DAX down 1.6%, and the CAC down 1.82%. In New York the S&P 500 has reversed the previous days gains with a 0.76% fall to 2,818. That’s just 23 points above the super important support zone which if broken will usher in some decent falls – got to break of course first. Anyway the fall in the S&P and stocks globally has also seen the VIX climb. The Dow is down 0.5% at 25,170 and the Nasdaq 100 is off 1.36% as the trouble at Tencent shines a light on tech valuations.

Here at home SPI traders have rained on the little party we had on the ASX yesterday when traders ignored the world and just hit the buy button. The ASX finished up 0.5% at 6,329 but with the SPI off 56 points overnight that’s looking like another false break above 6,300. We’ll see.

To forex and as I noted the Yuan is under pressure with USDCNH +0.6% at 6.9421. That rise has proved more telling than the Turkish lira’s rally. That’s because the supply of lira for traders to flog has been restricted by the central bank. That means USDTRY is down 7% at 5.9ish but USDZAR is up 2.4% at 14.58, USDMXN is up 1.7% at 19.19. Even the Korean won has lost half a percent with USDKRW at 1133. The MSCI EM currency index continues to tumble.

The Majors have been more circumspect. After plumbing new lows for this run yesterday afternoon we’ve seen stability and a few little gains against the USD. EURUSD is at 1.1344, basically flat. GBPUSD is down 0.23% at 1.2694, while the Yen has gained as risk aversion has risen 0.4% to 110.65 in USDJPY terms. The Aussie climbed off the mat at 72 cents and is at 0.7235 down 0.12%.  The Kiwi is at 0.6565 down 0.1% and the CAD has taken as belting as oil fell and has lost half a percent with USDCAD up at 1.3129.

Speaking of oil, refineries are running at 98% but there was still a massive 6.8 million build in inventories the EIA reported last night. No guessing what that’s done to prices. WTI is down 3.28% at $64.84 and Brent is off 2.44% at $70.69. Copper was down as noted above as were other metals and gold is getting hosed again losing 1.5% to sit at $1175. Next support is $1164.

Bitcoin is holding support and is up 5% at $6372 while US 2’s are trading 2.61% and 10’s are trading 2.86%. Those rates are the balance of the market funk and some solid retail sales (+0.5% mom and +6.4% yoy) and industrial production numbers (+4.2% yoy) for July.

On the day the big one here in Australia is employment. The market is expecting another 15,000 new jobs after last month’s huge 50.900 increase. But I noticed the big lift in the Westpac unemployment expectations index in yesterday’s Consumer Sentiment survey. Do they know something? We’ll know at 11.30am this morning – standby.

Offshore we get Chinese FDI, UK retail sales, EU trade, and then housing data, jobless claims and the Philly Fed index in the US.

Have a good day.

Macro Stuff that affects everyone and everything – either today or eventually


  • The data in the US was solid last night. It’s another reminder that for all the worries and headwinds the consumer is still spending. The retail sales data was a bit messy though with downward revisions to the previous month and a big beat for July. But net on net the takeaway is that with a 6.4% yoy growth rate for retail sales the consumer in the US is still pretty upbeat and spending.
  • So it’s worth noting that the Atlanta Fed has kept it’s call for Q3 GDP at 4.3%.
  • Interestingly the data also showed productivity is up 2.9% a huge beat on the 2.3% forecasters expected. But real wages fell. No wonder US companies are doing so well. So much for the myth that all the economy needs is productivity growth and wages will go with it. In the age of tech my sense is the relationship runs the other way.
  • Anyway, the Fed will keep tightening.
  • What’s going on in China, with its economic slowdown, with the Tencent miss, with the fall in stocks, and the blow out in USDCNH and USDCNY is far more important than the idiosyncratic issues Turkey has brought upon itself. Of course that Turkey set the table for this bearish Chine news is important. And it is also worth noting US markets haven’t broken down yet – that would take a fall below 2,795 in S&P futures terms. But we need to watch the situation in China closely. Especially the Yuan’s fall. That’s freaking a few folks out.
  • And the corollary of the China concerns is that even though the Turkish lira lifted the overall MSCI EM currency index is still falling. I won’t overegg it, but it might be nearing support is the Yuan can stabilise for a bit. I’m pretty sure the Chinese will want to do that. And below 7.00 in USDCNY terms. Medium term it remains – EM remain – under pressure from a strong US economy and a rising USD.
Click on me, I'll expand
Click on me, I'll expand
  • The Indonesian Central Bank, BI, should be applauded for getting out in front of this EM mess and hiking rates yesterday. It’s something I mentioned yesterday morning I would have done if I was the CB governor. It just says to markets “we’ve got this”. It doesn’t guarantee the Rupiah won’t keep tumbling because if the USD strengthens materially or if the Chinese economy continues to weaken the pressure will remain. But it does suggest to investors a steady hand is on the tiller. Bloomy has more here.
  • As readers know I do a weekly Crypto video and I talk about Bitcoin at the end of my daily video ever morning. I’m not a bitcoiner or crypto fanatic. I’m just looking at the technical and talking a little about what’s driving the market each day in the same way as I do any other asset. To that end, I wanted to highlight this headline from Bloomy as kind of ridiculous – “Bitcoin Bulls Regain Upper Hand as Extinction Concern Subsides”. How about Bitcoin is bouncing because it held really important support. I know less clicks, but that’s what is happening. While BTCUSD holds above $5765 it can build a base to rally. A break would suggest $4,200. It’s as simple and as difficult as that. :S  

Have a great day's trading.

Greg McKenna

Chief Market Strategist


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