Taksim Square Istanbul, site of recent confrontation between the Turkish military and the government supporters.
The major news event effecting markets globally especially in Europe, was the failed coup attempt against President Erdogan that took place in Turkey last Friday. About 290 people were killed and over 50,000 arrested detained or suspended. It is likely these targeted lists were created well in advance by the government. Travel and tourism stocks there have moved lower as a result. The aftershocks were felt in European markets already taking a hit from the recent terrorist attacks.
The Turkish Istanbul 100 Index has already fallen by nearly 10% this week. The country is important given its geographic location and its strategic position in NATO (North Atlantic Treaty Organization). Government officials have sought to assure foreign investors and have promised to use the tools of the central bank to calm the markets.
The American credit rating agency Moody’s has put the country’s Baa3 rating, the lowest level of investment grade on review to assess the impact of recent events.
In related news, the European Union (EU) Commissioner states in view of recent events, Turkish citizens are unlikely to be provided visa free travel to Europe. This is despite the migration deal negotiated earlier this year by German Chancellor Angela Merkel. This may well have a dramatic impact on stemming the flow of migrants into the EU.
The big investment news for the week is the ongoing surge in the American equity markets as the investor flight to safety, with government bonds, real estate and other assets becoming less profitable. U.S. markets are deemed to be the safest bet in the present global financial instability.
NASDAQ
Stock exchange
The Dow Jones Industrials and the Standard & Poor 500 index reached new all time highs this week and the tech sector NASDAQ a new high for 2016. The nine day advance in stocks was stopped only on Thursday, but resumed today.
Whether the upward surge in stocks will continue, is now dependent on the Quarter 2 reports due from close to 100 leading companies in the United States. According to leading analysts, this will be the 4th straight quarter of declining profits in the corporate sector. Earnings are projected to be 4.7% lower, than a year ago. This follows a 5% drop in Quarter 1.
The United States 10 year government bond yield, is still low at 1.59%. However, the American dollar is at a 4 month high against the major currencies of the world. It is a result of stronger economic data and the investor flight to safety, which is helping the United States markets. This increases the odds of a interest rate hike by the Federal Reserve Bank to 40% in December, from 20% just a few weeks ago.
The corporate sector witnessed the acquisition of chip designer ARM Holdings by the Japanese telecom giant SoftBank. If successful the $32 billion USD (United States Dollar) purchase will be the largest takeover of a European technology company ever.
The phenomenal success of the video game Pokemon Go led to a surge in the market value of the Japanese company Nintendo, which saw a gain of $17 billion USD in a week.
In Europe, the government of Italy is planning on creating a 50 billion Euro ($55 billion USD) fund to bailout domestic banks. This is in violation of EU rules, that specify that investors need to pay the majority of the losses rather than taxpayers.
The European Central Bank (ECB) announced the names and allocations for the first set of corporate bond purchases, that were made since last month. The total amount is listed at 8.5 billion Euros, the equivalent of $9.36 billion USD. It is important to note that about 16% of investment grade corporate bonds in Europe, are now providing negative yields.
In the United Kingdom (U.K.), the new Prime Minister Theresa May announces that Brexit (United Kingdom leaving EU) is now scheduled for January 01, 2019. Meanwhile, officials in Scotland are exploring the possibility of remaining in the EU, as well as in the United Kingdom.
Hollande during a meeting in Carcassonne France.
The French President Francois Hollande has stated his position on the upcoming negotiations concerning Brexit. If the UK wishes to retain access to the single EU market, the British will have to accept unlimited immigration from the EU.
The U.K. economy is shrinking at its fastest pace since early 2009, as foreign investment has been put on hold. It could well lead to a 0.4% contraction in the 3rd quarter.
China is considered further stimulus to reignite growth. The current fiscal deficit target is now 3% up from 2.4% in 2015. The central bank may expand the ratio to between 4% and 5% as policy makers become increasingly desperate to stem the economic slowdown.
Unha-3 space launch vehicle at Sohae Satellite Launching Station in North Korea.
In a destabilizing move in East Asia, North Korea launched 3 additional ballistic missiles. As it is a further violation of United Nations resolutions, South Korea is now pushing for tighter sanctions. Both the United States and Japan, have voiced their support of tighter restrictions.
Japan announces even more stimulus with an additional 20 trillion yen, the equivalent of $210 billion USD. This is almost double the previous plan. In response, the valuation of the yen drops to a new 6 week low. Investors are becoming increasingly worried about the excessive governmental debt levels in Japan now exceeding 240%, which is the highest in the developed world.
Japanese manufacturers witness a 5th month of decline in July. New exporter orders are now at their lowest level since December 2012.
The Malaysian Prime Minister Najib Razak has been linked by United States prosecutors to a scheme that skimmed hundreds of millions of dollars from one of the country’s economic development funds. In the lawsuit that has been filed, there may be a seizure of more than $1 billion USD. It puts the United States in direct confrontation with the Malaysian government, which an important trade partner in Southeast Asia.
Malaysian Prime Minister Najib Razak
Iran is attempting a return to the international debt markets for the first time since 2002. The leadership wants to help finance the continuing economic recovery, that has occurred since the lifting of sanctions.
Gold has retrenched this week, after reaching a high of $1,370.80 earlier this month. The price is now listed at $1324.20, a decline of $46.60 USD. The big mover still remains silver. The price Friday morning, leaves the price down $0.48 USD, at $19.68.
On Friday afternoon, American West Texas Intermediate (WTI) oil decreased -1.27% to $44.18 USD. Prices are now $1.75 USD lower from last week. It had dropped below $48.00 USD earlier in the day. International priced Brent is down by -1.17% at $45.66. This is a $2.02 USD decrease in valuation from the week before.
New week there will be a report on the G-20 meeting in China and the IMF outlook for the global economy.
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