With many traders away from their desks for summer vacation, the developed market is quiet.

Traders in Turkey and Argentina enjoy no such luxury.

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Orderboard & Flow

Traders in the northern hemisphere aren’t terribly motivated to take on risk in the final weeks of summer. Especially given developing events in the emerging market.

Turkey

Events in the former Byzantine empire center around a US expatriate living in Turkey. A Pastor by trade, one Andrew Brunson went proselytizing in the name of Jesus through an area controlled by groups at odds with the official government of Turkey run by President Recep Tayyip Erdogan.

Brunson was subsequently arrested and charged with sedition, espionage, terrorism… all the stuff that lands people in dark holes forever.

The Pastor claims innocence. The state claims evidence. Last week an appeal of some sort was denied and the value of Turkish assets crumbled.

What makes this a global event is that the Turkish President made a deal with US President Donald Trump to release Brunson, then reneged.

Feeling slighted, Trump levied crushing sanctions on Turkey in response.

There are obviously more details and emotions, but at the end of the day this crisis could be resolved (at least on the global stage) by Erdogan releasing the Pastor.

The world is full of people who enjoy watching it burn and it is entirely possible that President Erdogan is of such a mind, but that seems unlikely. The economic turmoil inside the country is evident on the streets of Ankara. It won’t be long before Erdogdan’s people turn on him.

He (hopefully) can see this and will find a face saving way to release Brunson in the near future.

In short, resolution of this theme is expected soon.

Argentina

The problems in Argentina aren’t as easy to solve. Hyperinflation has gripped prices and in a futile attempt to regain control, people in places are redenominating the currency without any advanced planing or warning for the countries merchants, banks, or counterparties to implement any of the changes that would make such a transition successful.

Contagion risk

As isolated themes these events aren’t all that consequential for the (mostly) developed markets audience that subscribe to this service.

That said, the potential exists for things to get very bad very quickly here. Sanctions on Turkey are causing impressive swings in asset prices and a failure by the Ergodan government to release what some have categorized as a hostage, may lead Turkey become the first casualty of the trade war.

Credit spreads on Eurozone debt have widened on fears that defaults in Turkey will manifest substantial losses for Eurozone banking counterparties should the Erdogan government collapse.

Trade War Update

Lest you forget, the trade war continues to simmer in the background of all this turmoil.

European trade officials will meet their U.S. counterparts in Washington Monday, while U.S. talks are expected to continue with Mexico where a resolution appears close in the long-running NAFTA saga.

This is in contrast to China, where sources suggest no quick resolution to the dispute with Washington is expected. Sources go on to suggest that Beijing is prepared for a long-term battle after leadership called for more concerted policy easing to boost domestic demand in the face of escalating external uncertainties.

The Main Event

Central banker’s are set to meet Friday for the Federal Reserve’s annual policy symposium in Jackson Hole, Wyoming.

With Fed Chairman Jerome Powell set to deliver a speech Friday morning, investors will be looking for clarity on a host of issues, ranging from the likely path of interest rates and balance sheet policy, to Powell’s take on emerging-market turmoil.

Over the course of the 3 day event, Formal conference discussions will focus on increasing market concentration across developed economies with a number of research papers being presented.

Most traders expect Federal Reserve officials to hike rates at the September meeting, and again in December, despite escalating volatility in emerging markets. However, with minutes of the Fed’s Aug. 1 policy meeting due to be released on Wednesday, a slew of Fed speakers throughout the week, and the growing risk of contagion, expectations could change markedly by this time next week.

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