The Central Bank of Turkey unexpectedly cut its interest rate by 100bps to 13% in its August 2022 meeting, surprising markets that expected rates to remain steady at 14%, and signaled that it would continue to promote the use of the lira in the Turkish economy. It was the first interest rate cut following seven consecutive decisions to hold the rate constant, adding to the 600bps in interest rates slashes since September of 2021. The decision to lower borrowing costs was made despite a plunging lira, soaring consumer prices, and an unbalanced current account. Inflation rose to 80% in July, the highest since 1998, largely due to surging costs of importing energy. The lira has plunged over 50% since the start of the central bank’s rate-cutting cycle last year. The Board foresees that the disinflationary process will begin with the resolution of military conflict in Ukraine and further measures to promote usage of the lira in Turkey.

European equity markets traded mostly higher on Thursday, with Germany’s DAX up more than 0.5% while the benchmark Stoxx 600 was also in the green after snapping a 5-day winning streak in the previous session. Energy shares led gains as oil prices rose for a second day, followed by basic materials and industrial companies. Final figures confirmed the annual inflation rate in the Euro Area hit a fresh record high of 8.9% in July, a day after data from the ONS showed the inflation rate in the UK picked up to 10.1%, the highest since 1982 and above market expectations. In addition, the latest Fed minutes pointed to little evidence inflation pressures were subsiding at the time of the meeting.

The Philadelphia Fed Manufacturing Index in the US rose to 6.2 in August of 2022 from -12.3 in July, returning to positive territory after two consecutive negative readings and above market expectations of -5. Although the general activity index turned positive, it was low, and the new orders index remained negative. The employment index increased, while the price indexes continued to decline but remained elevated. The survey’s future indexes rose slightly but continue to suggest that the firms expect overall declines six months from now.

The number of Americans filing new claims for unemployment benefit fell by 2,000 to 250,000 the week that ended August 13th, well below expectations of 265,000. On a non-seasonally adjusted basis, claims fell by 4,536 to 191,834 from last week’s downwardly revised value of 196,370, with notable decreases taking place in California (-1,965), Ohio (-1,785), and Georgia (-1,268), while a sharp increase took place in Massachusetts (+5,201). The 4-week moving average, which removes week-to-week volatility, was at 256,750, a decrease of 2,750 from the previous week.

Stock futures contracts tied to the three major indices were trading around the flatline on Thursday as investors weighed the minutes from the last Federal Reserve meeting. Policymakers reaffirmed their commitment to bring inflation back to its 2% target while signaling that a dovish pivot is unlikely until such an aggressive tightening would drag on growth. On the corporate side, dissipating quarterly results from retailer Target exacerbated worries about an inflation-induced slowdown in consumer demand. Critical economic data will also be released today, including weekly jobless claims and existing home sales. In regular trading on Wednesday, the Dow fell 0.5%, the S&P 500 lost 0.7%, and the tech-heavy Nasdaq Composite dropped 1.25%.

Oil prices rose for a second session on Thursday, with WTI crude up to $89 per barrel and moving further away from 6-month lows reached earlier in the week as falling US crude inventories more than offset fears of a global economic slowdown. EIA data showed that US crude stockpiles declined by 7.06 million barrels last week, while exports hit a record high and gasoline demand climbed to the highest this year. On the supply side, investors balance Russia’s gradual increase of output against bans by the European Union on Russian seaborne crude in December and on products imports early next year. The oil market has been under pressure recently amid efforts to revive the 2015 nuclear deal that could boost Iranian oil exports by about 2.5 million bpd.