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Last week / This week  

Aziz Sunderji, Zoso Davies, Juan Prada

  • Last week saw significant volatility across a number of major emerging markets; we think it is unlikely to pass quickly. US sanctions against Turkey and Russia, as well as the implementation of the first set of sanctions against Iran, have revived geopolitical risks. After falling nearly 25% over the course of the week, the Turkish Lira hit a record low versus the dollar on Friday after President Trump tweeted that he has authorised a doubling of tariffs on steel and aluminium imports from Turkey. The TRY continued its decline in thin trade during Asian hours today, with the selloff spreading to INR, IDR and ZAR, before trimming losses after Turkey’s Banking Regulation and Supervision Agency stepped in to limit swap transactions on the currency. Turkey’s central bank later announced a list of measures to support financial stability and the proper functioning of markets. Equity markets were down across the board.
  • Headlines about the Italian budget also fuelled volatility in BTPs, in an illiquid summer market. We think the rest of August should provide some temporary relief to the BTP market with Parliament now on its summer break.
  • Last week’s US July inflation report was solid with a higher-than-expected headline reading of 2.9% y/y thanks to stronger core CPI (2.4% y/y). We expect the US economy to continue to grow at an above trend pace and for spare capacity to be used, leading to a modest overshoot of inflation above the Fed’s 2% target. This week we get further inflation prints from the UK, Euro area, Canada, Argentina, India and Poland.
  • In Q2, UK GDP grew by 0.4%, up from 0.2% in Q1, as the economy recovered from cold weather and benefitted from an unusually warm Q2. Overall, however, the print was on the weak side, with activity slowing in the last month of the quarter, driven by services. July retail sales are released on Thursday. We note that the most recent Barclaycard data showed consumer spending growth of more than 5.0% y/y in July, the third consecutive month with spending over +5%, representing the strongest consistent growth in the data’s history.
  • We expect no policy change from Bank Indonesia and Norges Bank which meet on Wednesday and Thursday respectively.
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