The Toronto and U.S. markets are set to open lower Wednesday as the Turkey crisis weighs on investors as the country slaps more tariffs on American goods in retaliation for higher tariffs on Turkish products, particularly metal.
Action from Turkey’s central bank pushed the lira higher for a second day on Wednesday, helping European stocks and emerging currencies consolidate recent losses though the dollar ensconced at 13-month highs kept up the pressure on world markets.
The lira bounced another 5 per cent, sharply extending Tuesday’s gains as authorities further tightened the screws on foreigners aiming to short the currency. The lira is now around 6 per U.S. dollar, off record lows beyond 7.24.
But the escalating tensions between Turkey and the U.S. heightened anxiety in the market.
However, the Turkish lira started 2018 at 3.75 and the rebound follows a 36-per-cent drop over the past month. Fear of full-blown crisis and debt defaults in the country of 80 million people is far from over as the central bank’s failure to tackle galloping inflation and Ankara’s diplomatic tiff with Washington keep investors wary.
“It has calmed down a bit, the reason is that the Turkish lira is appreciating and that is causing people to re-focus on country-specific fundamentals so the contagion effect naturally is less,” said Koon Chow a strategist at fund manager UBP.
He said however there had been little fundamental change to celebrate and added: “It’s only a temporary thing for Turkish markets, I’m not sure (volatility) is over.”
Beijing has lodged a complaint to the World Trade Organization to help determine the legality of U.S. tariff and subsidy policies. In early premarket trading, 21 of the 25 most active stocks were in the red. A host of them were U.S.-listed shares of Chinese companies. E-commerce giant Alibaba fell 3.1 per cent, JD.com dropped 6 per cent and Baidu declined 2.8 per cent.
In Europe, Britain’s FTSE was off nearly 1 per cent, Germany’s DAX fell 0.65 per cent and France’s CAC dipped 0.83 per cent.
Asian stocks sagged on Wednesday, failing to track Wall Street’s gains and with the dollar near a 13-month high as concerns about Turkey’s financial crisis weighed on investor appetite, despite the lira’s move away from an all-time low.
Wall Street’s three main indexes rose on Tuesday as the lira’s climb eased fears of broader financial contagion for now. A string of robust earnings also boosted U.S. shares.
But the rise in U.S. shares did not carry through to Asia, with MSCI’s broadest index of Asia-Pacific shares outside Japan dipping 0.15 per cent after bouncing 0.4 per cent the previous day when the lira showed signs of stabilizing.
Japan’s Nikkei was off 0.68 per cent, China’s Shanghai index was down 2.06 per cent and Hong Kong’s Hang Seng fell 1.55 per cent.
A weakening global economic growth outlook and a report of rising U.S. crude inventories weighed on oil prices on Wednesday, even as U.S. sanctions threatened to curb Iranian crude supplies.
“Oil bears are taking their turn in the driving seat,” said Stephen Brennock, analyst at London broker PVM Oil Associates.
“Adding to the weakening price backdrop are signs that a deepening trade spat between the United States and China is undermining oil demand.”
U.S. crude stocks rose by 3.7 million barrels in the week to Aug. 10, to 410.8 million barrels, private industry group the American Petroleum Institute (API) said on Tuesday. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 1.6 million barrels, the API said.
Official U.S. oil inventory data was due to be published later on Wednesday by the Energy Information Administration.
Investors are concerned by the health of the world economy at a time of escalating trade disputes between the United States and its major trading partners.
Gold prices fell to their lowest since January 2017 on Wednesday at US$1,187.25 as the dollar hit an over 13-month peak on demand emerging from concerns about Turkey’s financial turmoil.
The greenback, in which gold is priced, has been bolstered by the euro’s fall, which has been dogged by concerns over the European banks’ exposure to Turkey.
The index tracking the dollar against a group of six major currencies hit highest since June 27, 2017 of 96.862 on Wednesday.
“People have preferred to stay away from gold and park their money in other assets,” said Hareesh V, head of commodity research, Geojit Financial Services, based in south Indian city of Kochi.
“If gold closes below US$1,190, prices will extend their fall to US$1,150 or even more ... We don’t expect any major bounce back as all fundamentals are negative for gold.”
Currencies and bonds
The Canadian dollar was lower but still above the 76-cent US mark as oil and gold prices struggled and the U.S. dollar gained strength.
The U.S. dollar rose on Wednesday to its highest levels in over a year as the Turkish lira crisis continued to trouble emerging markets feeding demand for the greenback as a safe-haven asset.
Signs the U.S. economy remains robust ahead of an expected interest rate hike by the Federal Reserve next month have helped the dollar outperform other currencies recently.
So has a plunge in the lira which has hurt the euro because of European banks’ exposure to Turkey and driven demand for the dollar and other currencies such as the Swiss franc and the Japanese yen as safe-havens.
The dollar index that tracks the greenback against six currencies, rose above 96.9 for the first time since late June 2017.
“U.S. rates continue on an upward path ... That does provide fundamental support to the dollar in the medium term. We see scope for that move to continue,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors.
In bonds, the Canada 10-year bond yield was lower at 2.293 per cent and the U.S. 10-year bond was lower at 2.868 per cent.
Stocks to watch
Constellation Brands Inc. said it would invest $5-billion more in Canopy Growth Corp, raising its stake in the Canadian marijuana producer to 38 per cent.
Callidus Capital Corp. shares tumbled 15 per cent to a new low on Tuesday after the lending company reported a seventh consecutive quarterly loss and announced chief executive officer Newton Glassman is stepping aside to take a medical leave.
Air France-KLM’s board is likely to appoint Air Canada’s chief operating officer Benjamin Smith as its new boss on Thursday, according to French newspaper Liberation.
Barrick Gold Corp. and Novagold Resources Inc. have been given a key governmental green light to build a massive new gold mine in Alaska, but uncertain economics amid a weakening gold price mean it’s unclear whether the capital-intensive project will ever see the light of day.
Intel slid 0.3 per cent after disclosing three more possible flaws in some of its microprocessors.
Nvidia climbed 0.2 per cent on a Wells Fargo double upgrade to “outperform”.
Macy’s was up 1.6 per cent ahead of its quarterly results later in the day. Retailers make up the majority of the S&P 500 companies yet to report results.
Earnings include: ATS Automation Tooling Systems Inc.; Atlantic Gold Co.; Cisco Systems Inc.; Delphi Energy Corp.; HLS Therapeutics; MCAN Mortgage Corp.; Metro Inc.; Morguard Corp.; Peyto Exploration and Development Corp.;Seabridge Gold Inc.; Storm Resources Ltd.; Village Farms International Inc.;
(8:30 a.m. ET) Canadian existing home sales for July.
(8:30 a.m. ET) U.S. retail sales for July. The Street is projecting an increase of 0.1 per cent from June.
(9:15 a.m. ET) U.S. industrial production for July. The Street expects a rise of 0.3 per cent from the previous month.
(9:15 a.m. ET) U.S. capacity utilization for July. Consensus is 78.2 per cent, up 0.2 per cent from June.
(10 a.m. ET) U.S. business inventories for June. Consensus is a rise of 0.1 per cent from May.
(10 a.m. ET) U.S. NAHB Housing Index for August. Consensus is a reading of 67, down from 68 in June.
With files from Reuters