Markets stage a mid-August pivot, on the watch for fallout from Turkey’s currency crisis

A new air of cautiousness is hanging over markets, and it could continue in the week ahead as investors navigate Turkey’s currency collapse and the fallout across global markets.

On Wall Street, traders pivoted quickly from rooting for a new all-time high in the S&P 500 to playing defense as global equities sold off instead. Bonds rallied and the dollar rose to its high of the year on Friday.

“I think traders will be very careful in the next week or two. You could taste the new highs, and they pulled the rug out from under them,” said Art Cashin, UBS head of floor operations. “I think Trump is going to keep the pressure on.”

The S&P 500 ended the week 0.2 percent lower at 2,833, now just about 40 points from the January high of 2,872. Treasury yields, which move inverse to prices, fell as investors sought safety from market turbulence. The 10-year yield was at 2.86 percent late Friday after edging near 3 percent earlier in the week.

“This is a very significant move in Treasurys,” said Ian Lyngen, head of U.S. rates strategy at BMO. Lyngen said the 15 basis point move showed a shift in strategy from investors, now seeking a safe haven. The move lower in yields came even with a 10-year high in core consumer inflation Friday, and auctions during the week for record amounts of 10-year notes and 30-year bonds.

“I think the January 26 high is going to be the high for a while,” said Peter Boockvar, chief investment strategist at Bleakley Financial Group. “We’re coming off a great earnings season, and that wasn’t enough to power us to new highs” for the Dow and S&P.

In the week ahead, July retail sales data comes out Wednesday, which could be an important look at the direction of consumer spending at the start of the second half of the year. There are also some key earnings, including Macy’s on Wednesday and Walmart on Thursday. Deere reports Friday.

China also has key data, including retail sales and Industrial production Tuesday, which will be watched for any damage from trade wars with the U.S. but also for progress in China’s efforts to stimulate its economy.

The focus, of course, will stay on trade and potential progress in Washington on the talks toward a new North American Free Trade Agreement. But the tumult in Turkey and spillover in the emerging markets could dominate trading early in the week.

The Turkish lira was down about 14 percent Friday alone, and global markets reeled on worries that Turkey’s declining economic state and the collapse in its currency would hit the European banking system and spread across emerging markets.

Turkey’s President Recip Tayyip Erdogan failed to offer any economic solace when he spoke Friday, declaring that “they have their dollar, we have our god.” President Donald Trump also said he would double tariffs on Turkish steel and aluminum, after imposing U.S. sanctions earlier in week because of Turkey’s detention of an American pastor.

Strategists expect emerging markets to remain under pressure when Asian markets open early Monday. “Everyone was searching for yield, and that’s what’s changing. All of a sudden people are becoming more discriminating. They become less tolerant of tough macro situations,” Boockvar said.

Monday

Earnings: Sysco, Axa Equitable

Tuesday

Earnings: Home Depot, Tapestry, Advance Auto Parts, Agilent, Cree, Canadian Solar, Myriad Genetics

6:00 a.m. NFIB survey

8:30 a.m. Import prices

Wednesday

Earnings: Macy’s, Pershing Square Holdings, Cisco Systems, NetApp, Tencent

8:30 a.m. Retail sales

8:30 a.m. Productivity and costs

8:30 a.m. Empire state manufacturing survey

9:15 a.m. Industrial production

10:00 a.m. Business inventories

10:00 a.m. NAHB survey

4:00 p.m. TIC data

Thursday

Earnings: Walmart, Nvidia, JC Penney, Nordstrom, Applied Materials, Madison Square Garden

8:30 a.m. Initial claims

8:30 a.m. Housing starts

8:30 a.m. Philadelphia Fed

8:30 a.m. Business leaders survey

Friday

Earnings: Deere

10:00 a.m. Consumer sentiment

10:00 a.m. QSS

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