Markets retreat on Turkish turmoil

Dow dropped 196 but off the lows, decliners over advancers about 2-1 & NAZ fell 52.  The MLP index slid below 291 & the REIT index was little changed in the 356s.  Junk bond funds were mixed & Treasuries soared, taking the yield on the 10 year Treasury down 8 basis points to 2.86%.  Oil rose to the 67s (more below) & gold inched up 1 to a depressed 1218.

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Turkey's currency, the Lira, plunged sparking concerns about the country's financial stability as investors worried about Turkey's its economic policies & a dispute with the US.  The Lira touched a historic low versus the $.  European & American bank stocks declined on concerns about their exposure to Turkey.  The Lira has plunged 66% since the start of the year, pushing up the cost of goods for Turkish people & shaking intl investor's confidence in the country.  The plunge in the value of the currency coupled with an inflation rate of nearly 16% could cause a lot of damage to Turkey's economy.  One of the triggers of the turmoil has been a standoff with the US over a detained American pastor that Turkey, a NATO ally, has put on trial for espionage & terror-related charges linked to a failed coup attempt in the country 2 years ago.  The US has demanded the pastor's release & imposed financial sanctions on 2 Turkish ministers & warned of additional measures.  High level meetings in DC between US & Turkish officials ended this week without an apparent resolution.  Today Pres Trump tweeted about the situation with Turkey, announcing further tariffs & noting that relations between the US & Turkey are "not good."  Meanwhile, investors are worried about the economic policies of Pres Erdogan, who won a new term in office in Jun with sweeping new powers.  Erdogan has been putting pressure on the central bank to not raise interest rates in order to keep fueling economic growth.  He claims higher rates lead to higher inflation, the opposite of what standard economic theory says.  Also, in modern economies, central banks are meant to be independent of govs to make sure they set policies that are best for the economy, not politicians

Economic turmoil in Turkey roils bank stocks

The federal gov recorded a $76.9B deficit in Jul, with increased gov spending & tax cuts keeping the country on track to record its biggest annual deficit in 6 years.  The Treasury Dept reports that in the first 10 months of this budget year, the deficit totaled $684B, up 20.8% from the same period last year.  Revenues are up only 1% this year with the increase held back by a big drop in corp tax payments.  Spending is up 4.4%, reflecting a big boost Congress approved earlier this year for domestic & military programs & rising costs to finance the debt.  The Trump administration last month sharply revised upward its deficit estimates, projecting annual deficits will once again top $1T next year.

US budget deficit totals $76.9 billion in July

A US plan to impose targeted crude sanctions against Iran could significantly impact global supply & exhaust the world's spare oil capacity cushion, according to the latest monthly report from the International Energy Agency (IEA).  The IEA's closely watched report comes shortly after the re-introduction of US sanctions against Iran, which from Nov will also include oil exports.  "As oil sanctions against Iran take effect, perhaps in combination with production problems elsewhere, maintaining global supply might be very challenging and would come at the expense of maintaining an adequate spare capacity cushion,"  the organization said.  "Thus, the market outlook could be far less calm at that point than it is today," the IEA added.  On Tues, Pres Trimps's administration reinstated sanctions targeting the Iranian gov's purchase of $, Tehran's trade in gold & other precious metals & it's automotive industry.  Trump also warned that unless Iran, which is a member of OPEC, complies with US demands, DC will look to impose far tougher measures in early Nov.  The 2nd batch of potentially more damaging sanctions will target Iran's port operators, as well as it's energy, shipping & shipbuilding industries.  Petroleum-related transactions & dealings between foreign financial organizations & the Central Bank of Iran will also be impacted.  "Certainly in the short term, there are no serious issues about supply because we have seen oil production in Saudi Arabia increase, in Russia increase and in one or two other Gulf countries," Neil Atkinson, head of the oil industry & markets division at the IEA, said.  "But as we say in the report, although things may be cooling down a little bit right now, we cannot get away from the fact that later in the year … We could be in a different situation where supply may be more constrained and there would then perhaps be a risk of the oil price increasing," he added.

Iran sanctions could make maintaining the world's oil supply 'very challenging,' IEA says

Oil prices rose more than 1% as US sanctions against Iran looked set to tighten supply.  However, futures were lower for the week as investors worried that global trade disputes could slow economic growth & hurt demand for energy.  US light crude finished the session up 82¢ (1.2%) at $67.63 a barrel & benchmark Brent crude was up 72¢ (1%) at $72.79 a barrel.  For the week, US crude dropped more than 1%, posting its 6th straight weekly loss for its worst losing streak since 2015.  Brent was down roughly ½% this week.  Escalating trade disputes have dimmed the outlook for economic growth & boosted the $, making oil more expensive for consumers using other currencies.  Major emerging economies including China, India & Turkey have seen their currencies slump.  Despite these worries, prices got a boost from the introduction of US sanctions against Iran, which from Nov will include oil exports.  Although the EU, China & India oppose sanctions, many are expected to bow to US pressure.  Analysts expect Iranian crude exports to fall 500K-1.3M barrels per day, with buyers in Japan, South Korea & India already dialing back orders.  The reduction will depend on whether buyers of Iranian oil receive waivers that would allow some imports.  The Intl Energy Agency said (above) the oil market could see more turbulence later this year.  "The recent cooling down of the market, with short-term supply tensions easing, currently lower prices, and lower demand growth might not last," the IEA said in a monthly report.  Investors are keeping a wary eye on the trade dispute between DC & Beijing.  In the latest round of levies, China said it would impose additional tariffs of 25% on $16B worth of US imports.  Although crude was removed from the list, replaced by refined products & liquefied petroleum gas, analysts say Chinese imports of US crude will fall significantly.  US energy companies this week added the most oil rigs since May as drillers follow though on plans to spend more on exploration & production in anticipation of higher crude prices in 2018 than recent years.  Drillers added 10 oil rigs in the latest week, bringing the total count to 869, the highest level since Mar 2015.

US crude posts 6th straight weekly loss, settling at $67.63, worst losing streak in 3 years

This was supposed to be a quiet day of trading with traders leaving early for a long weekend.  Then the financial mess in Turkey rattled the markets.  Over the weekend, calmer heads may be able to bring some comfort with measures to ease the chaos in Turkey.  Overall, the stock market took this news fairly well & there was buying in the PM.  Trade disputes remain out there, more worries for the traders.  The Dow finished the week down 150.

Dow Jones Industrials