The Citigroup economic surprise index is at its highest level since January 2015, that’s the good news.

Since 2010, Q1 U.S. GDP has averaged a touch better than a sad 1% growth, while Q2 has been coming in close to a robust 3%.  Seasonal adjustments have been powerful and the key to bond trading and anticipating Fed policy moves has been found in surfing the waves inside these back and forth trends.

Like clockwork, each year as we move from Q1 to Q2, Wall St.’s economist have been getting all beared up.  They lower the bar so far down, only to be embarrassed once again by a powerful upside reversal.

In early July, after holding a 1.40% U.S. 10 year treasury bond target for nearly two years, we recommended subscribers short U.S. treasuries through the TBT etf.  See more of our ideas, click here below:

While Brexit has drifted somewhat towards the sidelines, the situation in Turkey represents a real European risk. As the situation has continued to escalate with president Erdogan taking extraordinary measures to restore his executive power, the market has punished Turkey’s current paradigm of chaos. President Erdogan just today announced a three month state of emergency.

As we stated Friday night, we see significant and under talked about risks stemming from this crisis. The recent migration crisis from the Middle East into Europe has already posed issues with regard to domestic violence and increased entitlement spending. Considering the current budget deficits that exist in Europe, seeing another wave of migration, this time coming from a population center of 75 million people, would pose existential problems to European countries.

*ERDOGAN SAYS TURKEY WILL IMPOSE 3-MONTH STATE OF EMERGENCY,  when was the last civil war that didn’t start with a “State of Emergency?”

Civil War Risk has the cost of Turkey’s 5 Year Default Protection is on the Rise

Turkey is quickly moving from a rates story to a credit story.  Investors are no longer betting on rate cuts, they’re far more worried about credit risk.  Pick up our latest trade ideas and report on geopolitical risk management here:

Something Has to Give Here

In recent years as core CPI has trended this high, the U.S. 10 Year Treasury’s yield has ranged between 2.50% and 2.90% vs. 1.56% today.  This week’s data is pointing to higher bond yields coming at markets near you.

Fed Might Still Manage 1, 2 Hikes This Year, Lockhart Says -Rtrs

Federal Reserve Bank of Atlanta President Dennis Lockhart says in interview with Reuters that there’s no real argument about inflation, and only a modest one over the financial stability implications of continuing to leave rates so low.

• “Committee is much tighter in its array of opinion, and the differences between points of view are more nuanced and more related to sooner versus a little later on questions of policy”

Friday, we found American consumers moved into a higher gear in the second quarter, spending at the fastest quarterly pace in two years, retail sales figures will probably show on Friday. Economists project a 0.3 percent gain in core sales for June, which would take the three-month annualized gain in the so-called retail control group to 6.6 percent barring revisions. The figure is used to calculate gross domestic product and excludes food services, auto dealers, home-improvement stores and gas stations. – Bloomberg

Global economic expansion meets radical Islam.   An increasingly oppressive government in Turkey found itself under fire Friday evening.

For now the coup is contained but the west will not rest until new, rising risks are properly assessed.

Turkey GDP

2016: $940B

2010: $760B

2000: $190B

World Bank

We talking about $1 trillion of Global GDP is under military coup threat, something the world has never seen before.  Civil war and EU migration risks are sharply on the rise as Turkey’s ruthless Erdogan regime crushes civil liberties in their coup retaliation.  Turkey’s political climate is about to become even more oppressive and authoritarian, this increases risks as many will flee the country or stay and fight the regime.

*TURKEY CENTRAL BANK TO PROVIDE UNLIMITED LIQUIDITY TO BANKS

Nearly $60B of total government debt, but near term maturities are on the heavy side for Turkey.

*TURKEY REPRESENTS THE 16TH LARGEST ECONOMY IN THE WORLD WITH AN ECONOMY GENORATING A REAL GDP GROWTH RATE OF PLUS 5%

*TURK CBANK TO TAKE NECESSARY ACTIONS TO SUPPORT FIN. STABILITY

*Turkish Bank Postpones $300 Million Bond Sale Meeting on Unrest

*ERDOGAN URGES TURKS TO RESIST COUP IN SQUARES AND AIRPORTS

*AKSAKALLI: TURKEY COUP ATTEMPT WILL BE UNSUCCESSFUL

 

*ERDOGAN STILL IN CHARGE OF TURKEY, TO MAKE STATEMENT: OFFICIAL

Turkey’s currency posted the biggest one-day drop against the dollar since October 2008 as the country’s military said it has seized power. The lira plunged 4.6% to 3.0157 per dollar, the weakest level since late January.

When was the last time a trillion dollar economy has every gone into a military coup regime?  NEVER.

Since 1960 Turkey, a NATO member has been through the drama at least three takeovers by the secular-minded army.

Islamists based Ak Party government came to power in 2002, ever since the political influence of the military has been trimmed, until today.

As it seems now the Turkey is experiencing a full on military coup. Turkey has seen over 14 terrorist attacks in the past year alone.

Turkey’s prime minster Binali Yildrim has said the uprising is from the military ranks, but Prime Minister Yildrim maintains that he and his government is still in control. However, the military, in a email statement, said it had seized power.

War planes have buzzed the capital, gunfire has been heard and tanks are blocking roads in Istanbul. These developments are ongoing as it is not clear who has control at this point in time.

Gunfire reported in Turkey capital of Ankara; military jets and helicopters heard overhead.

*ERDOGAN STILL IN CHARGE OF TURKEY, TO MAKE STATEMENT: OFFICIAL

*ERDOGAN URGES TURKS TO RESIST COUP IN SQUARES AND AIRPORTS

*TURKEY’S ARMY SAYS IT HAS TAKEN CONTROL OF COUNTRY

Turkey’s 5 Year CDS made a strange reversal this morning, then closed for the day.

In their weekly report the EIA said,  Venezuela’s crude oil production fell by 20,000 bpd (barrels per day) to 2.2 MMbpd in June 2016 compared to May 2016.Many reasons were given for the drop in production,  electricity disruptions, oil equipment shortages and the overall economic crises taking place in the country.