Stocks drop despite Lira recovery; Oil plunges on DOE build

Summary:

• US indices and DE30 fall to lowest levels of the week

• Turkish Lira attempts to gain a footing

• Oil sinks to 4-month low after surprise DOE build

• USD hits 13-month high as retail sales beat

• GBP mixed despite tick higher in inflation

US markets have begun their day lower, with all 3 of the major indices in the red on the opening bell. The US500 has declined to trade back below recent lows around 2820 and this level could be seen as important support, with a clear drop below it opening up the possibility of a sustained sell-off. Not only has 2820 marked the low of the recent range, it also coincides broadly with the 21 period EMA, and should price fall below here then the recent uptrend could be seen to come under serious threat.

The biggest event of the week for Oil traders has lived up to its billing with a large move lower seen in the market following the latest inventory data showed a larger than expected build. An increase of 6.8M was well above the -2.6M consensus forecast and as notably higher than last night’s private API reading which showed a rise of 3.7M. The headline print was in fact the highest since January and given that higher inventories indicates either greater supply or lower demand then it is unsurprising that we’ve seen the initial flush lower.

The biggest piece of economic data from the US this afternoon has come in better than expected, with consumer spending figures topping forecasts. Some of the positivity from the release has been taken away however, with downward revisions to the previous prints boosting the latest reading in relative terms. The US dollar has extended its gains today, with the market moving up to its highest level since June 2017. The market made a decisive break above prior resistance around 95.10 last week and has built on those gains in recent sessions.

Price pressures in the UK ticked higher in the month of July with the consumer price index year-on-year increasing to 2.5% from 2.4% previously. This rise was as expected and as such the market reaction has been fairly muted with the pound trading little changed on the day. The core reading remained at 1.9% as was expected.

After the recent plunge, the Turkish Lira is on course for a second successive day of gains, but traders are still stepping with more than a hint of trepidation as far as the currency is concerned. While the situation is far far more extreme than that seen on these shores, the situation in Turkey is at essence an example of what happens when a central bank refuses to adequately tighten its monetary policy in the face of rising inflation. The Lira is looking to recover from its all-time low seen at the start of the week but news this morning that they had doubled tariffs on some US imports serves as a timely reminder that the country is not looking to back down tread the conventional policy path, and as such the risks of further escalations in the markets remains at elevated levels.