The Turkey Trade | November 24, 2017

The markets surged on the holiday shortened week. Was this due to low volume and vacations or was there truly a reason for the surge?

Economic Data

For the most part economic data was strong last week. The most notable was a surge in existing home sales (making up 90% of the home sales market). The unexpected surge helped contribute to a large rally mid-week. Late in the week market move movement was supported by strong initial reports for the Black Friday season, as well as better than expected consumer sentiment.

Sovereign Risks

While the hard data that leads to corporate profits proved to be beneficial to markets, the week did not go by without risk.

Germany has been struggling to build a political coalition in order to govern since their elections earlier in the year. Last week, those talks broke down and may lead to a new set of elections in 2018. The German economy is a massive portion of the EU and is necessary to the success of their current expansion.

The UK is moving closer to an agreed Brexit cost. The UK agreed amongst themselves to pay as much as €40B. The EU was looking for €60B, but originally the UK was only willing to pay €20B. This negotiation will likely drag on through December.

Japan is going to reduce their expectations for growth in the coming years as a result of reduced expectation of tax revenues. In relation to this, PM Abe has delayed Japan’s intent to balance the budget by 2021. This will allow them to focus their efforts on generating growth.

China experienced weakness in both equity and credit markets last week. They are struggling to find balance between the consumption based economy they want to be and the credit growth economy they have been. They have become increasingly vocal in their attempts to slow credit growth since their political congress last month. This effort will slow GDP from current levels substantially, but allow for sustainable growth into the future.


The sovereign risks are real and could have damaging impacts on earnings into the future. The real economic impact of current data was definitely enough to let markets ignore the potential risks down the road. As those risks mount, however, they will become tougher to overlook.


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