August 10, 2018
Consumer prices rose a moderate 0.2 percent overall as well for core (ex-food, ex-energy) items in July, but the yearly core rate unexpectedly inched up 1 tenth to 2.4 percent, the highest level since September 2008. The government deficit deepened by $76.9 billion in July to $684.0 billion, up 20.8 percent from last year this time, with fiscal 2018 year-to-date spending up 4.4 percent while receipts -- slimmed by a 28.5 percent decline in corporate tax receipts -- rose only 1.0 percent. Dominating the headlines, however, was a crisis in the Turkish lira, which tumbled about 18 percent intraday to an all-time low. Concerns about the ability of Turkish companies to pay off their oversized foreign-currency denominated borrowings dragged down stocks globally on risk-off sentiment due to the exposure by banks, particularly European ones, to this debt. U.S. President Donald Trump apparently intentionally added fuel to the fire in the morning as the sell-off in the Turkish currency was already underway when he tweeted that he has just authorized a doubling of tariffs on aluminum to 20 percent and on steel to 50 percent with respect to Turkey.
US stocks joined the rest of global equity markets in the sell-off generated by the Turkish Lira crash, with the Dow down 0.8 percent to 25,313, the S&P 500 off 0.7 percent to 2,833, and the Nasdaq also down 0.7 percent to 7,839. In contrast, U.S. Treasuries benefitted from safe-haven buying, pushing down the yield on the 10-year by 5 basis points to 2.875 percent. But it was the dollar that benefitted most from the Turkish Lira’s troubles, with the dollar index rising 0.9 percent to 96.32, its best level in over a year. Gold finished down 0.1 percent on the day at $1,219 per ounce while crude oil recovered a part of the week's losses, rising 1.4 percent to $67.8 per barrel.