Despite S&P’s revision of Turkey’s sovereign debt rating outlook to “stable” from “negative”, operation against Cumhuriyet newspaper, imprisonment of HDP MPs, terrorist attack thereafter in southeastern city Diyarbakır, as well as ongoing tension due to rating downgrade expectation from Fitch have led to a sharp swing in Turkish markets during the week. Deteriorated risk perception has led 5Y CDS surge to 271.8 on Friday from 252.1 a week ago. BIST100 ended the week by 5.2% loss (6.7% in USD terms) at 74,267 while USD/TRY rose 1.1% since last Friday to 3.138. Yield curve in line with widening in CDS shifted up and 5Y and 10Y benchmark bond yields ended the week at 10.11% and 10.31% respectively, up from 9.85% and 10.05%.
The main agenda inside will be the reverberations of operations against pro-Kurdish political party HDP members. Though it is not expected to have material market impact, two important data releases will be industrial production and balance of payments this week.
Main agenda for global financial markets this week will be the US presidential election. As a second tier item in the agenda, markets will follow Chinese reserves, inflation and trade balance.
China – FX Reserves (Oct): FX reserves which is widely followed to assess the fragility of Chinese economy stood at $3.17 trn in September and is expected to ease to $3.13 trn in October. Chinese policy to protect the value of Yuan leads to an erosion in FX reserves and consensus is that reserves will be unable to stay above $3 trn for a long time. Hence, any drop in reserves raises the concerns over deduction in Chinese reserves and creates market volatility.
Eurozone – 11:00 Retail PMI (Oct): As an important indicator that gives a hint over the fate of European economy, retail PMI stood at 49.6 in September. As there is no market consensus for the data, market will watch whether realization will stay over the previous realization. Any number better than September will be considered positive for European economy and support EUR/USD.
Eurozone – 12:00 Retail Sales (Sep): Retail sales as one of the main growth indicators in Europe is expected to drop 0.3% m/m in September, following 0.1% drop in August. Yet, y/y increase is expected to accelerate to 1.2% from 0.6% within the same period. Any realization pointing to a weakness in retail sales may hurt EUR/USD which is hovering above 1.11 at the end of the week to Nov 4.
China – Foreign Trade (Oct): Trade balance in China which will be announced on Tuesday is important for global markets as it will provide hint over Chinese growth. Exports are expected to post a y/y drop of 6.6% in October while imports are expected to be 1.1% lower than the previous year. Those rates were -10.0% and -1.9% respectively in September signaling a slight recovery in October. Realization in line with or better than market consensus will confirm the strengthening in economic activity in China and may have positive market impact.
Turkey – 10:00 Industrial Production (Sep): Industrial production which is the main market mover among data releases in Turkey this week will be announced on Tuesday at 10:00 Turkish time. Data will be important as it will provide hints over growth performance in the third quarter of the year. Market expects September industrial production to post 1.4% y/y growth in calendar adjusted basis. In August, industrial production posted a moderate increase of 2.6% over a year ago. Should data comes in line with expectation, 3Q16 industrial production growth will be 0.03%y/y whereas it was 2.5% in the previous quarter.
UK - 11:30 Industrial Production (Sep): The expected slowdown in UK growth indicators is yet to be seen after Brexit voting and industrial production in September is expected to pick up to 0.8% y/y following 0.7% registered in August. Any realization better than expectations would lead GBP/USD to exceed 1.3.
Turkey – Retail Sales (Sep): Though it has not a powerful market impact, retail sales volume to be announced on Tuesday is important to assess demand conditions. There is no expectation regarding September realization however it did not show a change in August over a year ago in calendar adjusted basis. Monthly change in seasonally adjusted terms was 3.7%. Any realization higher than previous month will hint to a recovery in economic activity in the third quarter of the year though recovery is not confirmed by other growth indicators.
US – 17:00 JOLTS Job Openings (Sep): Market consensus about September JOLTS (Job Openings and Labor Turnover Survey) is 5469 whereas realization in the previous month was 5443. Data is important as it is closely followed by Fed Governor Janet Yellen. Realization better than expectations may improve the perception about labor market.
US – Presidential Election: Polls and bets for election results still do not show a clear picture hence market reaction may be strong after the election. Fed’s policy making will also be more clear after the election as possibility of Trump’s victory may lead to a shift to a looser monetary policy by Fed.
China – 3:30 Inflation (Oct): China inflation which will be announced on Wednesday at 3:30 a.m. Turkish time is expected to increase to 2.1% from 1.9% a month ago. Realization in line or better than expectations will boost positive sentiment about China growth.
US – 14:30 Initial Jobless Claims (Nov 5): Initial jobless claims which showed the lowest level in Oct 8 with 246k is expected to stay at 260k in the week to Nov 5. It was 265k in the previous week. A better than expected amount will convince investors that initial jobless claims have dropped to a lower level permanently. Recall that initial claims have been under 300,000 for 87 straight weeks, the longest streak since 1970. Hence, a realization lower than 260k would have a positive market impact on dollar and US bond yields.
US – 21:00 Budget Statement (Oct): Budget balance is quite important to assess the fate of twin deficits in US economy. Market consensus for October budget balance is $81.9 bln deficit whereas budget generated $33.4 bln deficit a month ago. A better than expected realization would support bond prices as it will lower borrowing need in US economy.
Turkey – 10:00 Balance of Payments (Sep): The other important release of the week in Turkey will be September balance of payments to be announced by the CBRT at 10:00 (GMT+3). Market consensus for current account deficit is $1.9 bln. This would carry 12M trailing deficit from $31.0 bln in August to $33.1 bln in September. Data has no material market impact however surprisingly low or high realization may lead to a volatility in exchange rate.
US – 17:00 Michigan University Sentiment Index (Nov): Though it is considered as a second tier data in terms of market impact, data is important to show the tendencies of economic actors. Index level according to preliminary results is expected to rise to 87.5 in November from 87.2 a month ago.
03 Jul 18 (Tue)
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