REPORT
By Ovunc Kutlu & Gulbin Yildirim
US letter, week beginning July 25

What happened last week?

One of the most important developments last week was the rating agency Standard & Poor’s downgrading on Wednesday of Turkey’s credit rating to “BB” from “BB+” with a negative outlook amid the failed military coup in the country.

President Recep Tayyip Erdogan said on the same day that S&P’s decision was “political” and stressed that Turkish markets will not face any liquidity problems. He also noted that economic reforms will continue without any interruption.

In addition, foreign experts also emphasized that Turkey can contain the downgrade with its strong economy.

"Turkey will need to cope with it [the downgrade] and counter it by showing the resilience of the government and economy in the coming months," Cyril Widdershoven, a partner of consultancy firm VEROCY in the Netherlands, told Anadolu Agency Thursday.

Ed Hirs, an economist at the University of Houston, Texas, also stressed the government's role in the economy’s resilience to weather the storm.

Another important development last week was the U.S. stock market closing higher for the fourth week in a row. On a weekly basis, the Dow Jones increased 0.3 percent, the S&P 500 rose 0.6 percent and the Nasdaq jumped 1.4 percent.

The rise in indexes was mostly influenced by investors’ positive sentiment in the market amid strong macroeconomic data. Housing starts in June jumped by 4.8 percent from the previous month, well above market expectations of 0.5 percent, according to the Commerce Department. In addition, building permits rose by 1.5 percent last month, beating expectations of 0.6 percent.  

Meanwhile, weekly crude oil inventories in the U.S. declined for the ninth week in a row, pushing oil prices higher. American benchmark West Texas Intermediate rose 3.2 percent to $46.08 per barrel, while international benchmark Brent crude jumped 3.3 percent to $47.49. However, this was short-lived due to the volatility in the market, and both benchmarks fluctuated between $45-$50 a barrel.

What to expect this week?

The most important development this week will be the Federal Reserve’s July meeting and its interest rate decision. The Fed is not expected to make a rate hike on Wednesday, nor disturb the positive sentiment in the stock market, according to analysts. However, there is a slight possibility that it could signal a rate hike for its September or December meeting in Wednesday’s statement. If that happens, the stock market could post losses in the second half of the week.

Investors and markets will also watch U.S. macroeconomic data closely this week. New home sales in June will be announced on Tuesday, while on Wednesday durable goods orders and pending home sales for last month will be revealed along with weekly crude oil and gasoline inventories in the country. On Thursday, weekly initial jobless claims will be out, but the main focus will be on Friday’s gross domestic product for the second quarter.

If macroeconomic data reports strong results, it is possible that Wall Street could post new records and close the week higher for the fifth consecutive time.

The stock market and investors will also closely watch earnings. Some major U.S.-based global companies’ second-quarter net income and revenues to be announced this week include:

Tuesday -- Apple, Twitter, McDonald's,

Wednesday -- Coca-Cola, Facebook

Thursday -- Amazon, Alphabet (Google), ConocoPhillips, Baker Hughes,

Friday – ExxonMobil, Chevron

25 Jul,2016

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