The USD/TRY exchange rate bounced back, and was heading back to its all-time high after Turkey published a stronger-than-expected jobs report. It rose to a high of 34.23, its highest level since August 28, and a few points below its all-time high of 34.37. 

Turkey inflation is still elevated

The Turkish statistics agency published the September inflation data on Thursday. The report said that the headline Consumer Price Index (CPI) rose from 2.47% in August to 2.97% in September, higher than the median estimate of 2.20%. 

It slowed from 51.97% to 49.38% on an annual basis, also higher than the median estimate of 48.3%. It was the lowest inflation figure since July last year and was substantially lower than the year-to-date high of 71%. 

Core inflation, which excludes the volatile food and energy products, retreated from 51.6% in August to 49.1%. It then rose from 3.0% to 3.6% on a month-on-month basis.

These numbers mean that Turkey’s inflation was moving in the right direction, albeit at a slower pace than expected. In an ideal situation, the Central Bank of the Republic of Turkey (CBRT) would wait for the CPI to continue falling before cutting rates. 

Meanwhile, the producer price index retreated from 35.75% in August to 33% in September. It then dropped from 1.68% to 1.37% on a MoM basis.

The USD/TRY also reacted to the country’s forex reserves figures. According to the central bank, net reserves rose from 51.78% to 54.12% in September. Reserves slowed from $94.1 billion to $93.8 billion. 

Next actions by the CBRT

Attention turns to what the Central Bank of the Republic of Turkey (CBRT) will do. Analysts expect that it will hold rates steady in the next meeting and then start cutting either in December or in the first quarter of next year.

The CBRT has embraced an orthodox monetary policy since last year, and has delivered several large interest rate hikes. It moved the benchmark rate from 8% in May last year to over 50% today. 

Interest rate hikes help to slow a country’s inflation by making cash attractive to investors and by slowing spending. 

For a long time, however, the challenge has been that the country’s interest rates have been significantly smaller than inflation. As such, investing in Turkish government bonds attracted a negative real return.

The challenge is that Erdogan, Turkey’s president, may push for fresh interest rate cuts now that inflation has started falling. Rate cuts would likely stimulate higher consumer and producer prices. 

The other risk is that Turkey could come under US sanctions if a war breaks out in the Middle East. Historically, Turkey has been one of the biggest Israeli critic to an extent that it has blocked trade with the country.

Some US politicians, especially Republicans, have urged the country to reassess the relationship with Turkey, a NATO member. 

USD/TRY analysis

USD/TRY chart by TradingView

The daily chart shows that the USD to TRY exchange rate continued rising after the latest Turkish inflation report. It has remained above the 50-day moving average and the small ascending trendline shown in purple. 

The pair’s volume has been heading downwards while it has remained above the ascending purple trendline. Therefore, the path of the least resistance for the USD/TRY pair is upward, with the next point to watch being the all-time high of 34.37. A break above that level will point to more Turkish weakness as bulls target the next psychological point at 34.50. 

The alternative scenario is where the falling interest rates in the US push more investors to Turkey, leading to a big decline in the near term.

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The GBP/USD exchange rate suffered a harsh reversal this week as the US dollar index (DXY) staged a strong comeback. It retreated to 1.3090, its lowest point since September 12, and 2.24% below its highest level this week.

The EUR/GBP, on the other hand, rose to 0.8432, much higher than last week’s low of 0.8312. It remains 3.65% below the highest point this year.

Rising geopolitical risks

The GBP/USD pair plunged hard this week as the US dollar rallied amid the ongoing geopolitical events in globally.

The week started with Israel launching a land attack on Lebanon, a few days after killing the head of the Hezbollah. 

Things then accelerated when Iran retaliated by launching a barrage of missile attacks towards Israel. 

As a result, there are concerns that the crisis could continue in the coming weeks. In a report, the New York Times noted that Israel was now prepared to go to war with Iran. 

Joe Biden and other American politicians have supported strong retaliation, especially on Iran’s oil facilities.

These attacks will likely lead to a long and deadly conflict that could see countries like Russia and Turkey involved. 

The US dollar index has surged for two reasons. First, the currency is often seen as a safe haven when there are substantial geopolitical risks because of the US role in the world economy.

Second, it rose because a geopolitical event will likely lead to higher energy prices. Brent and West Texas Intermediate (WTI) have all jumped to $77.5 and $73.5, respectively. 

The US dollar index also bounce back after several Federal Reserve officials pointed to a gradual pace of future interest rate cuts. These officials included the likes of Jerome Powell, Tom Barkin, and Raphael Bostic. 

US nonfarm payrolls data

The next important GBP/USD pair will next react to the upcoming US nonfarm payrolls (NFP) data. 

Economists expect these numbers to show that the number of jobs created in September were 148k in September, a small increase from the 142k that were created in August. 

The unemoployment rate is expected to remain stuck at 4.2% while wage growth slowed to 3.3%. 

These numbers are important because the Fed is mostly focusing on the labor market instead of inflation. Therefore, a sign that the labor market is weakening will point to more aggressive rate cuts in the next few meetings. 

These numbers will come a few days a few days after the US published weak manufacturing PMI numbers. According to the ISM and S&P Global the manufacturing output continued falling even after Biden invested billions of dollars to boost the sector.

Bank of England aggression

The GBP/USD pair was in a strong bull run last week because of the rising signs of divergence between the Fed and BoE. 

In its last meeting, the bank decided to leave interest rates unchanged and pointed to a gradual pace of future cuts. 

However, in a statement on Thursday, Andrew Bailey warned that the bank could become more aggressive when it comes to cutting rates. He also hinted that the committee would be more of an activist. An analysts from Credit Agricole noted:

“The best days of the pound rally may be behind us. The pound is still looking overbought and slightly expensive versus the dollar and the euro.”

A case for more aggressive rate cuts by the BoE can be made because of the recent data, which showed that the economy was weakening. The manufacturing and services PMI numbers came short of expectations.

GBP/USD technical analysis

GBP/USD chart by TradingView

The GBP/USD pair rose and peaked at 1.3433 last week as signs of a BoE and Fed divergence emerged. 

This week, however, the pair has suffered a big reversal, moving below the important support level at 1.3272, its highest point in August.

On the positive side, it has remained above the 50-day moving average, pointing to a potential British pound rebound. 

However, the Relative Strength Index (RSI) has pointed downwards and has crossed the important point at 50. 

Therefore, the pair will likely remain under pressure, with the next point to watch being at 1.300, which has coincided with the ascending trendline that connects the lowest swings since April this year.

EUR/GBP technical analysis

EUR/GBP chart by TradingView

The daily chart shows that the EUR to GBP exchange rate bottomed at 0.8312 last week and then bounced back to a high of 0.8436. It has moved to the middle line of the descending channel shown in purple.

The pair has also remained below the 50-day moving average and is hovering at the important psychological point at 0.8400. Therefore, the pair will likely continue rising as bulls target the next point at 0.8500, the upper side of the descending channel. 

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The Indian rupee slumped this week, and was nearing its all-time low against the US dollar as investors waited for next week’s Reserve Bank of India (RBI) decision. It also rose to a high of 83.93 ahead of the upcoming US nonfarm payrolls (NFP) data. 

US NFP data ahead

The USD/INR exchange rate rose as the rising geopolitical risks led to more US dollar demand. Most of these geopolitical risks are coming from the Middle East, where the escalation between Iran and Israel is rising.

In a statement on Thursday, President Biden said that he supported a strong retaliation from Israel after Iran fired hundreds of missiles. 

While he resists bombing if Iran’s nuclear sites, Biden has said that he he supports attacking of its oil infrastructure, a situation that will lead to more escalation. 

Attacking Iran’s oil terminals will likely lead to a forceful retaliation, and possibly a wider war in the region whose impact will higher energy prices. The US dollar often rises when there are significant geopolitical riks. 

Indeed, data shows that the US dollar index (DXY) bounced back this week, rising from $100.1 to 101.90. The currency rose against most developed and emerging market currencies.

In addition to its role as a safe haven, the greenback jumped because a wider conflict will reduce the pace of inflation slowdown in the US. As a result, as Jerome Powell said on Monday, the Federal Reserve will likely embrace a gradual pace of rate cuts. 

The next important catalyst for the USD/INR exchange rate will be the upcoming US nonfarm payrolls (NFP) data. Analysts expect the data to show that the headline NFP rose from 148k in September from 142k in the previous month. 

Traders will look at the revised figure for August since the agency has revised it downwards several times in the past few months. 

The unemployment rate is expected to remain unchanged at 4.2% while the average hourly earnings is expected to slow from 3.8% in August to 3.3% in September. 

US jobs numbers have become very important because the Fed has put more emphasis on them now that inflation is moving downwards. A report by ADP showed that the private sector created over 140k jobs in August while another one by the BLS revealed that vacancies rose in August.

RBI interest ate decision

The next important catalyst for the USD/INR exchange rate will be the next interest rate decision by the Reserve Bank of India, which will happen on October 9. 

The decision will come at a time when India’s inflation has remained stubbornly high mostly because of food prices. Data showed that the headline Consumer Price Index (CPI) rose from 3.6% in July to 3.65% in August, higher than the median estimate of 3.55%.

Still, India’s inflation remains significantly lower than last year’s high of 7.4%. Therefore, the RBI is under pressure to signal when it will start cutting interest rates since since inflation is near its target level.

Analysts expect the RBI will leave interest rates unchanged in this meeting, and then hint towards a cut either in December or in January.

Besides, other foreign emerging market central banks like in South Africa, Indonesia, and Hong Kong have all slashed rates recently. Also, data showed that India’s economic output was slowing.

The Indian rupee has also dropped because of China’s comeback. Analysts expect that some of the foreign capital that would have gone to India has started moving to China. Indeed, the Chinese yuan has surged to its highest point in months. In a note, an analysts at TS Lombard said:

“The MPC is unlikely to make a sharp pivot in October as the internal RBI members remain the same for now and Governor Das has the casting vote in case of any tie.”

USD/INR technical analysis

USD/INR chart by TradingView

The weekly chart shows that the USD/INR exchange rate has been in a steady bull run in the past few years. It has jumped from 71 in 2021 to almost 84, and analysts Mizuho sees it rising to 84.1 by the end of the year. 

On the positive side for the Indian rupee is that the USD/INR has formed a rising wedge chart pattern on the weekly chart. This pattern is made up of two ascending and converging trendlines. These lines are now nearing their apex, meaning that a major bearish breakout may happen. 

If this happens, it means that the USD to INR exchange rate will retreat to the next key support at 81.64, its lowest point since April last year. Such a drop would imply a dip of 2.80% from the current level. 

However, a move above the rising wedge part of 84.2 will invalidate the bearish view and point to more rupee weakness. 

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Energy stocks have done well this week as the rising geopolitical risks in the Middle East pushed crude oil prices to their highest point in weeks. Brent, the international benchmark, rose for six consecutive days, reaching a high of $78.12, its highest point since August 30th.

The West Texas Intermediate (WTI) also bounced back to $74.21, up by over over 13% from its lowest level in September. Most oil and gas companies have soared, with the Vanguard Energy ETF (VDE) rising to $128, its highest level since August. 

Exxon, the biggest energy company in the US, rose to a record high of $123.18 this week, rising by over 400% from its lowest point in 2020. Similarly, Chevron shares jumped to $150, rising by more than 260% from its 2020 high.

These companies have done well because higher prices mean more profits in the coming months. 

However, there is still a risk that the ongoing oil price increase will be brief since Saudi Arabia has hinted that it will start focusing on market share gains. If this happens, oil could resume the downward trend.

Therefore, master limited partnerships might offer the best risk-reward in the coming months. For example, The Williams Companies (WMB) has soared by more than 43% while ONEOK (OKE) has surged by 40% in the same period. The two have soared by 176% and 87% in the last five years. 

Read more: RTX stock price is firing on all cylinders: is it a good buy?

The Williams Companies | WMB

The Williams Companies is one of the biggest MLP companies in the industry with over $9 billion in annual revenue and a valuation of over $58 billion. 

It is a company that runs some of the biggest oil and natural gas assets in the US, with over 33,000 miles of pipelines and 35 natural gas processing facilities. It serves over 700 clients. 

Williams has done well even as the price of natural gas has dropped sharply in the past few years. Data by TradingView shows that it has fallen by 70% from its highest level in 2022. And as we wrote last week, natural gas has formed an inverse head and shoulders pattern, pointing to more upside in the near term.

It has benefited from the rising US natural gas exports now thar Russia has slowed its deliveries to Europe. For example, the US LNG exports have soared by over 50% in the past few years, as shown below.

The Williams Companies has also become a highly profitable company in the industry, with its net income jumping from $850 million in 2019 to over $3.1 billion last year. 

Its recent financial results showed that its net income was $401 million while its adjusted EBITDA was over $1.6 billion. 

Analysts are optimistic that the Williams Companies has more upside to go, with those at Citigroup, Barclays, UBS, and Scotiabank having a bullish rating. 

Technically, the stock has remained in a bullish trend after bottoming at $6.51 in 2020. It has remained above the 50-week and 100-week moving averages while the MACD and the Money Flow Index (MFI) has continued rising. 

Therefore, the path of the least resistance for the stock is bullish, with the next point to watch being at $60. 

ONEOK | OKE

ONEOK is another top energy stock that has done better than most mainstream names. It has risen by over 40% this year, continuing the gains that started in 2020 when the stock bottomed at $8.98, and reached $94 today.

ONEOK is an MLP company that operates 50,000 miles of pipeline that transports crude oil, natural gas, natural gas liquids, and refined products. It has a presence in key areas like gathering, processing, storage, and transporting. 

ONEOK’s growth has happened both organically and through acqusitions. For example, it acquired Magellan, another MLP for $14.1 billion in 2023. This buyout brought in thousands of pipelines and terminals. 

The most recent ONEOK news was that it was raising $7 billion in senior notes. $1.5 billion of these notes will be 3-years with a coupon rate of 4.25% while the longest duration ones will be $800 million senior notes yielding 5.85%. 

The company will use these funds to acquire EnLink Midstream from Global Infrastructure Partners. It will also use the cash to buy Medallion Midstream. 

The most recent financial results showed that ONEOK’s net income was $780 million, a big incraese from the $468 million it made last year. Its operating income rose from $737 million to $1.22 billion. 

The ONEOK stock has remained above the 50-week and 100-week moving averages, meaning that bulls are in control. Similarly, the Relative Strength Index (RSI) and other oscillators have all pointing upwards. 

Therefore, the stock will likely continue rising as bulls target the next key resistance point at $100. 

OKE chart by TradingView

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John Sheehan, a popular Wells Fargo analyst, has identified a set of companies that he believes will do well over time. In particular, he identified companies with strong long-term earnings growth, strong management teams, and return on invested capital. Some of the most notable names were Alphabet, Disney, and Omnicom. Here are other notable names:

Accenture | ACN

Accenture is a leading player in the technology industry. Unlike popular names like Google and Microsoft, it is not a mainstream name because it offers its services to large companies in industries like banking, manufacturing,  and consumer staples. 

Accenture helps big companies implement technologies like cloud, cybersecurity, data and artificial intelligence, and digital engineering. In most cases, the company works behind the scenes to implement these technologies.

Accenture operates in a large and highly competitive industry whose growth mostly depends on global IT spending. Some of its top competitors are companies like Kyndryl, an IBM spin off, Wipro, Infosys, and Cognizant Technologies. 

Accenture’s business is expected to continue doing well this year as companies boost their IT spending. Analysts at Gartner predict that spending will rise by 7.5% this year to over $5.6 trillion. The analysts cited the growing demand for generative AI, which is expected to keep growing.

The most recent financial results showed that Accenture’s business was doing well as new bookings jumped to $20.1 billion. Its annual bookings jumped to over $81.2 billion, a 13% increase. 

Notably, the company saw a $1 billion booking for generative AI work during the quarter, a number that will continue growing in the near term. Its quarterly revenue rose to $16.4 billion while its total dividends paid for the year were over $3.2 billion. Accenture stock price has soared by over 30% from its lowest point this year.

Read more: Accenture announces $4 billion share buyback as AI powers strong quarterly revenue

Kinder Morgan | KMI

Kinder Morgan, as I wrote earlier this year, has been one of the best-performing companies in Wall Street. These gains have continued as the stock has surged to a record high of $23.35. It has risen by more than 37% this year.

The rally accelerated this week as the natural gas and oil prices surged because of the rising geopolitical tensions in the Middle East.

Like Accenture, Kinder Morgan is not as popular as other energy companies like Exxon and Chevron. That’s because it works behind the scenes to move crude oil and gas through its extensive network of pipelines. 

This is a good business model, because, it is not entirely dependent on oil and gas prices. Instead, the company is paid on the volume it delivers. 

The most recent financial results shows that Kinder Morgan’s revenue rose to over $3.57 billion in the second quarter and $7.4 billion in the first half of the year. Its operating income rose to over $1.038 billion. 

Kinder Morgan combines revenue growth with a healthy dividend yield of 5.01%. It has also paid and raised these payouts in the last six years. 

NextEra Energy | NEE

Wells Fargo also recommends investing in NextEra Energy, the biggest utility company in the world. NEE is a dividend aristocrat that has raised its dividend payouts for over 28 years. It has a dividend yield of about 2.41%.

NextEra Energy’s business has done well in the past few years as its revenue has soared from over $19.2 billion in 2019 to over $28 billion last year. It has done that as energy utility bills have continued growing.

The challenge, however, is that NextEra is a highly expensive stock that after it surged by over 61% in the last 12 months. Its P/E ratio has risen to 25, higher than the S&P 500 index average of 21.

Starbucks | SBUX

Wells Fargo has also taken a contrarian statement on Starbucks, a highly embattled blue-chip company. 

Starbucks has come under pressure in the past few years, with its stock falling by over 18% from its highest point in 2021.

The company has struggled because of the rising competition from China, where firms like Luckin Coffee have continued to gain market share. It has also struggled as the cost of doing business has risen, with coffee prices and wages surging.

Recently, however, Starbucks has hired a veteran expert in the restaurant industry to turn it around. While this is possible, most analysts believe that the recovery will take time, 

Wells Fargo has also identified other quality blue-chip companies that have a combination of dividend growth, revenue momentum, and other catalysts. In the consumer staples industry, the company has identified names like Procter & Gamble, Sysco, and Colgate-Palmoliv. 

In the consumer discretionary, the company has identified firms like Lowe’s, Home Depot, and TJX Companies. The other top names are Blackrock, Chubb, and JPMorgan.

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