Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics covered include: Turkish Lira remains weak, Indian Rupee, Australian Dollar, New Zealand Dollar break lower, gold and silver break downwards, Wall Street eases, oil steady

No. 7. Growing chatter about capital and convertibility controls
It’s not a great surprise that there is now more talk domestically about the possibility of Turkey implementing capital controls to limit outflows and counter the dollarization of the economy. This increases the incentive for the private sector (both local and foreign) to accelerate its dis-engagement from the local currency. With that comes even greater financial and economic pressure.

The bottom line for Turkey is not a pleasant one. Due to the coincidence of domestic and external pressures, the authorities have limited room for maneuver when it comes to policy formulation and financing, especially if they decide to continue to go it alone. It is becoming less and less likely that the government will be able to avoid some combination of higher interest rates, budgetary austerity, recourse to IMF financing and some forms of capital controls. Indeed, the longer it waits to tighten policies domestically and engage with the IMF, the greater the risk that all of this will come about.

Investors should brace for more volatility for the Turkish lira and bond spreads, as well as more technical contagion for other emerging markets. The spillover for the advanced world -- particularly Europe -- would only become consequential if the sources of contagion were to spread.

Eoin Treacy's view

Erdogan has some big decisions to make, the most important of which is when to apply for foreign assistance. If that happens sooner then international confidence will be preserved. If the crisis deepens and defaults mount then the discount demanded by investors for assistance will be much higher.

Turkish 1-week repo rates are 17.75% ahead of an inevitable hike this week.  Argentina’s are 45% and the Peso is still declining. If Turkey persists in going it along then we already know where the trajectory of rates is headed. That knowledge increases the potential corrective measures will be put in place.

Indian stocks fell as turmoil in Turkey sparked worries of potential market contagion and damped investors’ appetite for Asia’s best performing equity market.

The S&P BSE Sensex fell 0.6 percent to 37,644.90 in Mumbai after rallying to new highs in 10 of the past 15 sessions. Risk assets fell globally as Turkey’s lira extended its slide to record lows Monday after the nation’s president showed no signs of backing down in a standoff with the U.S.

State Bank of India Ltd. slumped more than 3 percent after a third straight quarterly loss while HDFC Bank Ltd. fell 1.1 percent after its deputy managing director resigned. The Sensex’s 14-day relative strength index closed above the oversold demarcation of 70 in nine out of last 12 sessions. It ended at 69.83 on Friday.

“Turkish lira-led influence seems dangerous as risk-off will impact Indian equities as well,” Deven Choksey, managing director at KR Choksey Shares & Securities Pvt., said by phone from Mumbai. “One should be cautious in putting in new money for the near term as sentiment weakens.”

So far, of the 47 NSE Nifty 50 companies that have announced results, 27 have either met or exceeded average analyst estimates, as per data compiled by Bloomberg. Tata Steel Ltd. will announce results later in the day. The Sensex has advanced over 10 percent this year, holding its place as the best performing market in the Asia-Pacific region.

Eoin Treacy's view

The Indian Rupee broke downwards today to a new all-time low held the decline throughout the trading session. That weakness is in contract to the high degree of volatility seen in the South African Rand and suggests the selling pressure is more committed.

With investors turning against Turkey, the government in Rome is trying to avoid Italy being next in line. Italy has had contacts with the ECB to discuss the risk of a speculative attack on its debt, a person familiar with the situation said earlier on Monday.

Deputy Prime Minister Luigi Di Maio sought to tamp down concerns of a selloff. “I don’t see a real risk that this government will be attacked, it’s more a wish of the opposition,” Di Maio said in an interview with newspaper Corriere della Sera.

“All know the fence that protects the prey will soon be lifted and the financial speculation easily sees the periphery’s debt as an easy target and is positioning itself ahead of the next developments,” lawmaker Borghi said. "It is significant that an external event like Turkey that has nothing to do with Italy unleashes such an effect.”

Eoin Treacy's view

Italian bond yields are an outlier within the Eurozone not least because the populist government has been signalling it wants to break the ECB’s fiscal deficit rules and its bonds have been punished accordingly. 

Eoin Treacy's view

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Eoin Treacy's view

If you have an interest in attending an online Chart Seminar please contact Sarah and we will arrange times based on the time zones of those who wish to attend.

There will be another Seminar in London in November and I am in initial discussions with a potential partner about organising a New York Seminar.

If you would like to attend or have a suggestion for another venue please feel to reach out to Sarah at sarah@fullertreacymoney.com.  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

Eoin Treacy's view

One of the requests subscribers have asked for most over the last few years has been to have an easy way to find what positions I have open at any given time. Therefore, I repost this section on a daily basis and the title will always include the date of my most recent trade.