Last week, the focus among traders was on Turkey, trade, and key economic data. This week, these issues will remain although there will be few economic data expected.
Turkey has been a thorn in the side of investors for the past few months. The problems started when the country went on a borrowing binge. It borrowed in US dollar at a time when interest rates were low. The funds were used to fund development around the country. The problem now is that the US interest rates are rising, inflation is rising, and the country’s leaders are not prepared to make hard choices. At a time of increasing inflation, independent central banks try to reduce it by hiking rates and tightening monetary policy. Turkish president changed the constitution to give himself more power and during the past election, he promised to be more active in monetary policy, a move that many interpreted as being dovish on rates. These problems were compounded by the recently-announced sanctions and tariffs by the United States. After the attempted coup, the country has held an American pastor who they accuse of being a spy. Turkish problems highlight a major concern for the other emerging market economies, which borrowed heavily.
There was a sense of calm in the markets last week after it was reported that China and United States were working on a deal. During the weekend, it was reported that the two countries aim to reach a deal before November, a move that many people expect will be political especially for Trump. A good deal where China agrees to Trump’s proposals will help the Republicans while a negative deal will be bad for the republican party during mid-terms.
On Wednesday, the Federal Reserve will release the minutes for the meeting held three weeks ago. The minutes are important for market watchers because they show them the thinking behind the interest rate decision and what to expect. In the upcoming minutes, markets will look at where the Fed officials are on the interest rates. Already, market watchers expect the rates to be raised in the September meeting. Another hike in December is almost less certain.
Jackson Hole Summit
Every year, Fed officials and policymakers from around the world meet at Jackson Hole in Wyoming. The meetings are hosted by the Kansas Fed. The aim for the meeting is for the peers to discuss key issues in their countries and provide a forward guidance about the economy. Therefore, markets will pay close attention to the summit and listen to key speeches.
Markets will continue to focus on the cryptocurrencies. Last week, their prices fell and the combined market capitalization declined to less than $200 billion. This is significantly lower than the $800 billion reached in January this year. The decline last week was attributed to the news that people who invested in Initial Coin Offerings (ICOs) were now selling off their holdings. An ICO is a form of raising money where entrepreneurs issue tokens. They have worked well before but a recent report by WSJ said that most of them were scams.
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