Financial market research and analysis

The FTSE opened upbeat in London. All sectors reversed early losses, except the basic materials. Technology stocks are 28% higher on news that Japanese Softbank offered $32 billion to buy ARM Holdings; this is 1700p/per share in cash, and a 43% premium on Friday’s close. Softbank also announced its plans to double Arm’s UK headcount over the next five years. ARM Holdings traded 43% higher on the session.

Elsewhere, TUI (-1.92%) remains under pressure following the recent terrorist attacks in Nice, France, and an attempted military coup in Turkey last week.

Energy and mining stocks traded south at the open. The high volatility in the early hours of trading is a sign of stress across the commodities sector. The sell-off could deepen. The latest price update on Rio Tinto (-1.42%), Anglo American (-2.13%), BHP Billiton (-2.10%), Glencore (-1.45%), BP (-0.62%), Royal Dutch Shell (-0.43%).


Turkey in the spotlight

The Turkish lira is in focus today; the failed Turkish military coup attempt injected a great amount of volatility in the lira. After recording its biggest slide since 2008 on Friday, the USDTRY retraced half of these losses; yet the appreciation in the lira could not prevent the Turkish stock index from sliding below the 80’000 mark in Istanbul.

From an investor point of view, the chaotic situation in Turkey will further damage revenues from tourism and could trigger a new wave of capital outflows in foreign investments in the very near term. Despite the sharp correction in the lira, mid-term investors are expected to stay away from Turkish assets. Although a potential pick-up in inflation and a deeper current account deficit are certainly on the menu, the Turkey’s Central Bank could not be willing to readjust its unorthodox strategy, mostly believed to be backed by Turkey’s authoritarian President Erdogan. This is where the politics and economics converge dangerously. In the lack of suitable monetary policy support, the gloomy fundamental outlook is expected to keep macro manager on the short side of the play. Investors are topping up hedges by buying CDS on Turkey. The 5-year credit default swaps on Turkey are off their one-year lows.

A major question is whether the Central Bank of Turkey (CBT) will readjust its roadmap given the recent turmoil. Of course, the volatility in the lira and a higher country risk should translate into a higher risk premium for investors. But currently, the CBT is rather set to pull the rates lower. In this perspective, we do not rule out the possibility of a further rate cut from the CBT at Tuesday’s MPC meeting. The CBT could carry on with its easing strategy to minimise the perception of the coup attempt and to restate its trajectory. Hence, the lira could be an interesting sell-the-rally as the CBT may not step back from cutting the overnight lending rate by an additional 50 basis points at Tuesday’s MPC meeting.

From a political point of view, the coup is expected to strengthen President Erdogan’s power in his journey to restore a presidential system in Turkey. Foreign ministers are meeting in Brussels today. We expect a joint statement from EU and US leaders on the situation in Turkey.