A $15bn rescue package from Qatar, and a limited package of exchange controls in limiting banks’ ability to take out short positions has bought the Turkish lira some brief respite in the last few days, but let’s not kid ourselves here, unless President Erdogan takes steps to restore confidence in his stewardship of the Turkish economy then we could well see the lira come under further pressure.

The US doesn’t appear in any mood to relieve the pressure on the Turkish government in securing the release of their pastor, if recent comments from vice President Mike Pence, and Treasury secretary Steve Mnuchin are any guide. President Erdogan may be able to defray some of the risks to the Turkish economy by trying to improving his ties with Germany and Russia, but if the US really wanted to turn the screws it’s unlikely that these countries would be able to do much about it. 

The announcement of a resumption of trade talks between the US and China is also a welcome development, it’s always good to talk and attempt to resolve differences, and the rebound in the yuan has brought markets some breathing space, however there is still a great deal of difference between agreeing to talk, and coming to an agreement. For now it appears an escalation has become less likely, hence yesterday’s rebound in equity markets.

Nonetheless the fact that the Dow posted its best one day gain since April doesn’t change the fact that investors remain incredibly anxious. While US markets continue to reside in a sweet spot of a strong economy, decent yields and strong earnings, the same cannot be said for markets in Europe where growth appears to be plateauing and concerns are rising about the resilience of the Chinese economy.

Metals prices are also flashing red, which given their historical bellwethers to the global economy has to be a concern, particularly given the strength of the US dollar and the overall direction of US monetary policy over the next 12 months.

Today’s market open in Europe has been a fairly tepid affair after yesterday’s modest recovery, however we still look set to close the week lower, diverging further away from their US counterparts.

Political events in Europe still speak to a fractious political landscape with the tragedy in Genoa being used as a stick to beat the EU with by the Italian government, as it looks to set its next budget.

The pound has had a disappointing week despite a raft of data that points to an economy that while not firing on all cylinders is by no means the worst in the G7. Once again it’s been politics that has been weighing on the currency with the increasing talk of a “no deal” Brexit keeping traders on the sidelines. All of this chatter also makes it less likely that we’ll see another UK rate hike before next summer, and that is weighing on the pound.

The publication of a raft of government contingency papers which are reported to be published next week isn’t likely to change sentiment either, with the current uncertainty unlikely to dissipate much before the return of parliament.

Today’s latest EU inflation numbers are expected to point to an economy in Europe that still lacks significant inflationary pressures, with core prices expected to remain weak at 1.3%, while headline inflation is expected to be confirmed at  2.1%.

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