U.S. and Canadian stock markets appear set for another disturbing selloff to start the week, as a plunge in Chinese equities overnight has intensified concerns about one of the world's key economic growth drivers.
Despite a lack of fresh economic news and major central bank speeches scheduled, it should be another nerve-wracking day for investors. Futures suggest the Wall Street and Bay Street major indexes could be looking at declines of close to 1 per cent when they open. And continuing this month's unsettling trend for many Canadian investors, income-producing securities such as real estate investment trusts, dividend stocks and bonds will continue under considerable pressure, as the 10-year U.S. Treasury yield hit its highest level in nearly two years early this morning.
The U.S. dollar is continuing to strengthen, with the U.S. dollar index - which measures the value of the greenback against a basket of foreign currencies - hitting its highest level since June 5. That, in turn, has the loonie trading at fresh 52-week lows this morning.
The focal point of global markets today is China, where stocks in Shanghai plunged 5.3 per cent amid worries that Beijing is being increasingly reluctant to ease a liquidity crunch in interbank money markets. It was the Chinese stock market's worst day in five years, and small and medium-sized Chinese lenders were among the stocks suffering the steepest losses.
Short-term interbank interest rates in Shanghai eased overnight after hitting record highs on Thursday, according to Dow Jones Newswires. But they stayed above 6 per cent, considered to be an elevated level, and Goldman Sachs highlighted the increasing risks to the Chinese economy today by cutting its forecasts for growth this year and next, citing the tighter financial conditions.
Goldman cut its 2013 gross domestic product forecast to 7.4 per cent, down from 7.8 per cent. And in 2014, it now sees growth of 7.7 per cent, well below its earlier forecast of 8.4 per cent. "The recent tightening of the interbank market has sent a strong policy signal that the strong credit growth earlier in the year will likely not continue," Goldman economists wrote. Several other banks, including HSBC and UBS, also recently cut their growth forecasts for China.
Copper, which is particularly sensitive to the growth trajectory of China, is down more than 2 per cent this morning, which should continue to pressure base metal miners on the TSX today.
The strong U.S. dollar, and continued concerns over the possible withdrawal later this year of Federal Reserve economic stimulus, also has gold under pressure this morning. It's trading close to three-year lows.
Now, here's a closer look at what's going on this morning and what's to come.
Futures: S&P 500 -0.9 per cent; Dow -0.9 per cent; Nasdaq -0.7 per cent; TSX Toronto -0.7 per cent
Hong Kong's Hang Seng -2.22 per cent
Shanghai composite index -5.31 per cent
Japan's Nikkei -1.26 per cent
London’s FTSE 100 -0.97 per cent
Germany’s DAX -1.15 per cent
France's CAC 40 -1.64 per cent
WTI crude oil (Nymex Aug) -0.04 per cent at $93.65 (U.S.) a barrel
Gold (Comex Aug) -0.63 per cent at $1,283.90 (U.S.) an ounce
Silver (Comex July) -1.47 per cent at $19.67 (U.S.) an ounce.
Copper (Comex Sep) -2.77 per cent at $3.01 (U.S.) a pound
Canadian dollar down 0.0115, or 1.20 per cent, at $0.9517 (U.S.)
U.S. dollar index up 0.26 at 82.58
U.S. 10-year Treasury yield 2.51 per cent, up 0.09
Canada 10-year government bond yield 2.45 per cent, up 0.12
STOCKS TO WATCH:
Reuters is quoting sources as saying Barrick Gold Corp. this week will lay off up to one-third of its corporate staff from its headquarters in Toronto and a few other offices. The stock continues under pressure this morning amid lower gold prices, down 1.6 per cent in the premarket.
Apple Inc. shares are down 1 per cent in the premarket after Jefferies cut its price target to $405 (U.S.) from $420 over concerns it may slow its iPhone production.
THIS MORNING'S TOP INVESTING READS ON THE WEB:
What's behind the Chinese cash crunch.
The insiders in the U.S. that are most likely correct on their stock calls are bullish right now.
Bond guru Jeff Gundlach offers these three points every investor should know.
7 charts that tell the Fed not to taper QE3.
The gold trade is the most bearish since 2010.
The top investment minds at UBS are advising their clients to keep substantial equity exposure and not to worry about recent market turbulence.
The premarket report is constantly updated to reflect the latest news developments and market moves. For instant headlines on breaking economic and corporate news in the premarket, follow Darcy Keith on Twitter at @eyeonequities.