How Is The Rest Of The Trading Week Shaping Up?

Moody’s Mulls Credit Downgrade for Turkey as Markets React to Geopolitical Uncertainty……

One of the big 3 credit rating agencies– Moody’s – is mulling a downgrade of Turkey’s credit status following the massive onslaught recently. Financial markets were rocked by the turmoil across Turkey, as key cities came under heavy bombardment from a failed coup attempt. Moody’s has Turkey rated at Baa3, but back in 2014 it downgraded the country from stable to negative. Turkey is racked by widespread political instability, and there is no clarity with respect to the effectiveness and predictability of policymaking.

The other two credit rating agencies, Standard and Poor’s and Fitch are also reassessing their ratings of the country. Back in May 2016, S&P upgraded Turkey from negative to stable, with a focus on the resilience of the Turkish economy. Its rating was retained at BB +, but Fitch is less bullish about Turkey’s economic prospects. The ratings agency will review Turkey’s investment ratings on 19 August 2016.

In Turkey, the Istanbul index dropped 7.1% on Monday, but has staged a slight recovery as the Turkish lira gain ground against the USD. The central bank of Turkey slashed interest rates after the currency dropped perilously close to 3.050 to the greenback on Friday after the failed coup attempt. Presently, the Turkish lira is trading 0.2% lower against the greenback at 2.9830 to the dollar.

When the Bell Tolls – Wall Street Follows the Bears

Tuesday, 19 July 2016 saw Wall Street opening with bearish signals. The Dow Jones Industrial Average was down 0.14% at 18,507.21, the S&P 500 index shed 0.15% to 2,163.73 and the Nasdaq composite index dropped 0.37% to 5,036.93. By 10 AM, the mood on Wall Street was clear: the risk-off approach to equities was back, snapping several days of strong gains. For 1 year however, the Dow Jones is up 2.33% and the S&P 500 index is up 1.74%. The Nasdaq composite index has a 1-year performance of -3.32%, indicating precisely how meagre the gains have been in equities markets since the time of around the commodity price crash and the virtual collapse of China’s economic juggernaut.

As a result of weakness in equities, we are seeing government bond prices rising. Oil remains at uncertain levels, with WTI crude oil trading at $45.05 on the New York Mercantile exchange, down 0.42% while Brent crude oil is trading flat at $46.96 per barrel on the ICE exchange. Natural gas is 1.43% higher at $2.76 while gold is 0.11% higher at $1330.70 per ounce on the Comex and silver is 0.35% lower at $20.01 per ounce on the Comex.

Trading Opportunities

The Japanese yen continues to weaken against the greenback, which is providing ample buying opportunity for binary options traders on the USD/JPY currency pair. Recall that the pair was trading perilously close to the critical 100:1 level just recently, and the ongoing depreciation of the yen has allowed the premier Japanese index (Nikkei 225) to rally. Japanese stock market was closed on Monday, 18 July, meaning that the 1.4% advance that was recorded was maintained heading into Tuesday, 19 July.

That the Japanese yen has plunged markedly against other currencies has helped to facilitate a better performance on the Nikkei 225. In terms of viable trading opportunities for the remainder of the week, the USD/JPY pair is bullish, as is the Nikkei 225 index. The Turkish lira has gained some ground against the greenback, but remains precariously balanced. Gold is seesawing around the $1330 mark and crude oil is on the decline at around $45 – $46 per barrel.