Analysts at ANZ explained that with market-unfriendly news out of Turkey, German inflation for August underperforming expectations (1.9% y/y vs expectations of 2.1% y/y) and US data remaining firm, markets responded as one would expect.
Key Quotes:
“Emerging markets were under pressure, the euro weakened, fixed income was supported and equities were under pressure.”
“The USD was also supported by month-end rebalancing. It was noticeable, however, that the response in asset markets to Turkish wobbles was smaller than a few weeks ago, suggesting investors have adjusted their risk and feel issues in Turkey are localised, as they are in Argentina. Given the miss on German inflation and proximity of Turkey to Europe, bunds led the move, with the 10-year falling 5.7bps to 0.35%. The yield on the US 10-year note was 3bps lower at 2.86%. The DAX was off 0.5%, the CAC 40 fell 0.4% and the FTSE 100 was down 0.6%. The S&P 500 was also weaker, off 0.4% at the time of writing. Gold didn’t reflect the risk-off tone, falling 0.6% to USD1198.92/oz. WTI was 0.4% firmer at USD69.8/bbl.”
Solid US data
“July personal spending rose 0.4% m/m. That is a solid start to Q3, if a touch weaker than the Q2 average (0.5% m/m). The economy is still running above potential with the latest GDPNow estimate from the Atlanta Fed for Q3 running at 4.1% saar. Strong growth is reflected in the firming of core PCE inflation data which rose 2.0% y/y – its highest level since April 2012. The spending and inflation data are consistent with further gradual normalisation from the Fed.”
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