Last week certainly was one to forget for crypto traders who were hit by heavy declines on almost all major coins. The Bitcoin price fell to US$6,142.07 and the Ethereum price plunged to US$318.07.
A rejection of the Winklevoss Twins’ bitcoin exchange-traded fund (ETF) and a delay in a US Securities and Exchange Commission (SEC) decision on the VanEck ETF weighed heavily on the market. There was also a Bloomberg intelligence analyst warning that Bitcoin was in “dump mode”.
Turkish lira sinks to record lows
Outside the world of crypto trading, a slump in the Turkish lira rocked global equities and emerging markets as fears spread to the European and US banking system about exposure to Turkey.
Despite the Turkish Lira plunging to a record low against the USD on Friday, most other emerging market (EM) currencies held up quite well. Interestingly, demand for safe haven assets wasn’t particularly strong and the price of gold was held in check by a broad-based rise in the US dollar.
This may indicate that the market views the steep fall in Turkey’s currency as a storm in a tea cup that’s unlikely to cause market contagion spreading to other emerging markets.
US trade sanctions hit Russia’s rouble
The big driver for the slide in the Turkish lira was the prospect of tougher US sanctions following US President Donald Trump announcing a doubling of US tariffs on Turkish steel and aluminium.
Uncertainty remains about how US sanctions against Russia and Turkey will play out. While Russia potentially faces more severe sanctions than Turkey, it has much stronger economic fundamentals and institutions, meaning the fallout from fresh sanctions might be relatively limited in Russia.
Fed still on track to raise rates
Despite the escalating trade war, we believe that global GDP growth should remain strong over the rest of the year due to healthy growth in household consumption and business investment.
Friday’s report on US consumer prices reinforced the view that the US Federal Reserve (the Fed) will raise rates over the coming quarters. Headline CPI inflation held at 2.9 per cent in July, but core inflation rose to a 10-year high of 2.4 per cent. We expect it to continue to trend higher.
With inflation trending towards 2 per cent in most advanced economies and the European Central Bank (ECB) unlikely to hike rates until September 2019, we take the view that the Fed is likely to raise rates a further four times by the middle of next year.
RBA watching wage and jobs data
Turning to Australia, this week’s release of the wage price index for the second quarter is crucial given the RBA’s expectation that a steady rise will help underlying inflation climb towards 2.5 per cent. However, wage growth remains near historic lows and I think the annual growth rate will remain low at 2.1 per cent.
Monthly jobs data is due out this week. My view is 15,000 jobs will have been created in July, leaving the unemployment rate steady at 5.4 per cent.
Japan dodges a recession
Over in Japan, economic growth data was positive. The GDP numbers released on Friday showed that Japan’s economy expanded a seasonally adjusted 0.5 percent in the second quarter of 2018, driven by strong consumer spending and business investment. This beat expectations.
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