A market that has been stuck in the summer doldrums of late is being moved this morning by some currency winds blowing in from Turkey, which has seen its currency (the lira) continue to fall out of bed against the dollar.
Currently, the lira is down 10.0% against the greenback, which is an improvement from overnight lows that were plumbed in the wake of an FT article highlighting concerns among ECB officials about European banks' exposure to Turkish debt holders.
The thrust of the market's concerns about the lira is tied to worries about a possible contagion effect -- an emerging market currency crisis if you will.
That's no small consideration given past disruptions linked to currency crises. We want to be careful about overselling that thought as a trading catalyst today.
After all, this market has been bereft of "new" news, so it's fair to say the risk of overreaction to a headline catalyst such as this is real. As of now, though, the reaction has been relatively measured.
The S&P futures are down 13 points and are trading 0.5% below fair value. That's not a panicky retreat by any means, yet there are some knock-on effects of the Turkish lira story that can't be overlooked altogether.
The euro is weakening and, alternatively, the U.S. dollar is strengthening. The U.S. Dollar Index is up 0.7% to 96.13, which is close to a 14-month high. A stronger dollar is an earnings-growth headwind for U.S. multinational companies and an export drag that will make it more challenging to cut trade deficits.
We don't want to get too far into the currency weeds in this space. The point is that the problem with the Turkish lira isn't a non-factor, yet it also shouldn't be elevated to a factorial selling factor either.
There will be weakness at the start of today's trading. The Nasdaq 100 futures and the Dow Jones Industrial Average futures are trading close to 0.5% below fair value, too.
Currency issues and the specter of a contagion effect will give pundits something new to talk about today, as will the Consumer Price Index Report for July and the news that Tesla's (TSLA) Board of Directors will reportedly meet next week with financial advisors to consider a process for exploring a take-private deal.
We don't know what will come of the Tesla discussion, but we do know that the Consumer Price Index was in-line with the Briefing.com consensus estimates.
Total CPI increased 0.2% while core-CPI, which excludes food and energy, also increased 0.2%. The monthly gains left CPI up 2.9% year-over-year and core CPI up 2.4%, which is the largest 12-month increase since the period ending September 2008.
The key takeaway from the report is that consumer inflation trends are running above the Federal Reserve's longer-run inflation target, which will keep the Federal Reserve inclined to raise the target range for the fed funds rate.
The latter point notwithstanding, Treasury yields are falling this morning. The 2-yr note yield is down two basis points to 2.63% and the 10-yr yield is down five basis points to 2.89%. That's tied more, however, to defensive positioning stemming from the currency issues.