Risk Off

Whilst Turkish President Ankara has taken measures to stop the run on the Lira, he is unwilling to back down in the confrontation with the US. The heightened geopolitical tensions, in addition to strong US retail sales has sent the dollar soaring which is ultimately dragging metal prices lower and weighing on miners. Given the heavy weighting of miners on the FTSE, the index didn’t stand a chance.

The limits on shorting the Lira taken by Ankara have halted the slide in the currency, which has firmed over 4% after its 20% decline, easing contagion fears and cooling the threat on financials. Whilst this is a short-term measure, its doing the trick for now. However, it was the more confrontational move by Ankara to raise tariffs on American cars, alcohol, cigarettes, escalating tensions with the US that has caught the market’s attention and increased flows into safe havens such as the Japanese Yen and Swiss Franc.

The dollar has also been benefitting from its safe haven status, which combined with US retail sales printing at 0.5% in July, well ahead of the 0.1% forecast, has pushed the greenback to 14-month highs.

FTSE 350 Mining Sector Sinks

Metals across the board are trading sharply lower with copper at a 12 month lows, gold striking a 13 month low and silver down over 3.5%. A rising dollar makes dollar-based commodities more expensive for buyers of other currencies, hitting demand. Unsurprisingly the mining sector, which is trading over 4.5% lower, is taking a big hit with Fresnillio, Antofagasta and Anglo-American trading down by 5%.

Investors Shrug Off A Tick Higher In Inflation

The pound was another casualty of the stronger dollar. Investors shrugged off the uptick in CPI to 2.5% from 2.4% year on year in July, whilst core inflation remained constant at 1.9%. Rising prices at the pumps had a part to play but with oil prices now stabilising, bar any further volatility in oil, inflation is likely to remain steady around these levels, removing the need for any further rate rises from the BoE before summer next summer.

With no rate hike expectations and with no deal Brexit fears weighing, the pound is unable to put up a fight versus the mighty dollar, falling to a low of $1.2662, its weakest level since June last year. Investors will now look to retail sales and the start of Brexit talks tomorrow for further clues.