The situation in Turkey provided sellers a focal point, and sell they did from Asia to Europe, from China to South Africa. The dollar was resurgent against most currencies, especially emerging market ones, led by the Turkish Lire, South African Rand and a usually not very volatile Indian Rupee. Turkey has had problems with a President who seems to read from a different economic textbook altogether. The detention of a US pastor provided Donald Trump all he needed to impose tariffs on Turkish exports to the US. President Erdogan, however, is of similar temperament and Turkey quickly retaliated with disproportionately large tariffs on its US imports. The US has had trade surpluses with Turkey until recently; the balance of trade is now close to flat. Over the week, the US was the only market to record a rise with most markets from Europe to Asia falling for one reason or the other. If Trump is making America great again one of his prime strategies is making everyone else poor.

The EUR which was widely expected to trade through 1.25 this year instead traded through 1.14. Somehow the market extrapolated Eurozone growth in 2H 2017 and priced in a more hawkish ECB policy response which the ECB has now retreated from. With softening PMIs and economic data the ECB may have to be more dovish than even recently updated expectations. So far the message has been that the softness is likely transitory and that the economy is robust. Lately, data have indicated greater divergence between manufacturing and services and between countries in the Eurozone with Germany leading by far and the periphery falling further behind. The divergence is starkly reflected in sovereign spreads; the spread between peripheral members’ bonds and bunds has widened considerably in the last month. Italy will unveil its budget this autumn which is likely to meet resistance from Brussels.

Credit markets have been relatively well behaved compared with equities, FX and commodities. Credit markets are dominated by US issues and the current risk tolerance for US markets has helped stabilize fixed income from IG to HY. IG had a very bad first 5 months but has since recovered strongly. The HY market has actually outperformed while exhibiting less volatility than the IG market. Duration has played a big part in fixed income volatility this year. The more stable ABS and structured credit markets have reacted not so much to macro political news but to supply. A wave of supply weakened the market in the second quarter and is still working its way into markets. However, demand remains healthy, fundamentals strong and yield pick-up significant despite over a year of tightening.