Week in review: Ankara lifts anchor

This week: Apple falls close to the tree, Chinese market remains fragile and Turkey no longer opposes higher interest rates.

The Turkish currency crisis took a dramatic turn this week as authorities abandoned their much-heralded hostility to raising interest rates. After a year-long rout in the lira, and with inflation running close to 18%, the Central Bank of Turkey raised its benchmark rate by 6.25 percentage points on Thursday to 24%. This was well in excess of most expectations, which were for a rise to 22%. The new interest rate is the highest since 2004.

Turkey’s President Recep Tayyip Erdoğan has frequently voiced his opposition to higher interest rates, describing them as “the mother and father of all evil.” Just before Thursday’s decision, he doubled down, describing rates as a “tool of exploitation.” Some interpreted this statement as an attempt by Erdoğan to distance himself from the decision – and from any economic consequences it may have.

The effects of the decision were soon felt in the markets. The lira gained more than 5%, and Turkish stocks rallied too. Various other emerging markets also received a boost. The FTSE Emerging Index rose 1.2% on Thursday.

China remains fragile

But the news from Turkey came too late for most markets in the Far East to react. The year-to-date slide in Chinese shares continued this week, with the Shanghai 180 index down 1.0% by Thursday’s close and 16.7% lower for 2018 so far.

The market capitalization of the domestic Chinese market has fallen by almost half from its 2015 peak. As several observers have noted, the entirety of China’s stock market by market capitalization – representing well over 2,000 listed companies – currently adds up to just five Apples.

Apple falls close to the tree

Apple itself was under scrutiny this week, as it launched the latest versions of its iPhone. Priced at $1,099, the new iPhone XS Max isn’t cheap. But with a 6.5” screen, it’s certainly big.

The consensus seemed to be that Apple’s product launch didn’t give investors anything they weren’t already expecting.

Investors didn’t seem overly impressed. Apple’s shares fell immediately after Wednesday’s launch event. The consensus seemed to be that Apple’s product launch didn’t give investors anything they weren’t already expecting. On Thursday, the shares resumed their upward progress.

Investors may be asking themselves whether the big technology stocks are running out of room for positive surprises. As many have noted, this year’s rise in the S&P 500 rests largely on the fortunes of a handful of tech companies. So any loss of confidence in those highly valued shares could have dramatic consequences. Nevertheless, the U.S. index managed to eke out another 1.1% gain by Thursday’s close.

Good times, bad times

There was some good news from the UK economy. At the start of the week, gross domestic product (GDP) growth came in at 0.6%, the highest rate for more than a year. There was positive news from the jobs market too. According to the Office for National Statistics, wage growth accelerated in the three months to July, up to 2.9% from 2.7% for the three months to June. Meanwhile, the unemployment rate remained at a decades-low level of 4%. There was a slight decrease in the employment rate. This represented a rise in the number of people who are not seeking work.

News from the high street was less comforting. Shares in UK retailers fell after department store giant John Lewis announced that its profits had fallen by a startling 99% in the first half of the year. The unlisted company cited the “most promotional market we’ve seen in almost a decade,” as it blamed steep discounting for the slump in profits. The chain’s claim to be “never knowingly undersold” puts it in a difficult position when rivals slash prices. John Lewis expects its full-year profits to be much lower than last year’s.

Overall, the good economic news and strength in miners and oil stocks helped the FTSE 100 Index to a small gain (+0.1%) by Thursday’s close. Across the Channel, the FTSE World Europe ex UK index did somewhat better (+1.0%) helped by strength in banks and automobile manufacturers, with the latter boosted by news that the U.S. had invited Chinese officials to fresh trade discussions.

And finally...

If you’re increasingly concerned about social media and its almost limitless powers of distraction, this might give you pause for thought.

This week, scientists in South Africa announced that they had found the world’s oldest drawing inside the Blombos Cave, 185 miles from Cape Town. The Blombos artwork is thought to be some 73,000 years old, making it a good 30,000 years older than the nearest contender. It’s delicately drawn on a silicrete flake and consists of several criss-crossing lines in red ochre. In other words, it’s a hashtag or the following symbol: #.

Perhaps we have yet to learn what was trending 70-odd millennia ago. But inevitably, there’s already a #Blombos hashtag on Twitter.

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