Canadian and U.S. stocks are poised to rise sharply Thursday after China said it will hold trade talks with the United States later this month and Turkey’s lira continued its recovery run.
Bruised world shares and emerging market currencies fought to regain their footing. Asian equities hit one-year lows overnight as they tracked Wednesday’s global stock declines and Tencent results disappointed, but a fresh recent high for the FTSE and modest gains elsewhere pulled Europe up early on.
China on Thursday said a delegation led by its vice commerce minister would travel to the United States for talks in late August at the invitation of Washington.
“The Chinese are heading to Washington and yuan bounced, the Qataris are heading to Ankara and the lira bounced and has left everything else floating around really,” said Societe Generale’s global head of currency strategy Kit Juckes.
He added that it was still too early to sound the all clear around Turkey - its new finance minister and son-in-law of President Tayyip Erdogan will hold a global conference call later - and that the broader worries were still around the extent of China’s economic slowdown.
A dip in the U.S. dollar and the sight of the lira striding back above 6 per U. S. dollar and a higher Chinese yuan also steadied emerging market currencies like South Africa’s rand, Russia’s rouble and Mexico’s peso.
EM stocks nudged lower again though after they had crossed the 20 per cent peak-to-trough threshold that defines a ‘bear’ market. Metals markets clawed higher, however, after copper had also entered ‘bear’ territory.
In Europe, Britain’s FTSE rose 0.58 per cent, Germany’s DAX gained 0.46 per cent and France’s CAC rose 0.6 per cent.
News of talks with the U.S. helped Chinese stocks pare losses, with both Shanghai Composite Index and Hong Kong’s Hang Seng index each down 0.8 per cent. Earlier in the day, Shanghai was down as much as 1.9 per cent while Hong Kong was off 1.7 per cent.
Japan’s Nikkei average closed 0.1 per cent lower in choppy trade, with the benchmark falling as much as 1.5 per cent before a brief swing into positive territory on China news.
Commodities
Oil edged higher as global markets steadied on Thursday, recouping some of the previous day’s 2 per cent slide, though a weakening outlook for crude demand kept prices in check.
The oil market had felt the effects on Wednesday of a large build in U.S. inventories that added to concern over the outlook for fuel demand while crude was also swept lower by broader selling of industrial commodities such as copper.
China and the United States have implemented several rounds of tit-for-tat trade tariffs and threatened further duties on exports worth hundreds of billions of dollars, which could knock global economic growth.
The crisis gripping the Turkish lira, meanwhile, has rattled other emerging markets and reverberated across equities, bonds and raw materials.
“The growth story is now more or less a U.S. growth story. The rest of the world isn’t playing along any longer,” said Saxo Bank commodities strategist Ole Hansen.
“It also really reflects how the theme in the commodities market has so quickly changed from being one where the worry was about supply, with Iran sanctions for oil or Chilean (miner) strikes for copper, and now the focus is on demand.”
Gold prices bounced from 19-month lows on Thursday as the dollar slipped on news that China and the United States will hold trade talks this month, although sentiment remained negative.
Gold prices have tumbled more than 10 per cent since the April peak above US$1,365 an ounce.
The meeting between a Chinese delegation and U.S. representatives offers hope for progress in resolving the trade conflict that has unnerved financial and commodity markets in recent weeks.
Political and economic uncertainty have seen investors opt for the safety of U.S. Treasuries and the U.S. currency, which when it rises makes dollar-denominated gold more expensive for holders of other currencies, potentially subduing demand.
“I’m viewing the news of the talks as arresting the slide, not reversing it. The talks are low level, we are not out of the woods yet, sentiment is still bearish,” said Ole Hanson, head of commodity strategy at Saxo Bank.
“For a significant gold recovery we need to see the dollar lose some of the strength that has built up. The risk to emerging market growth from currency pressures is not going away immediately.”
Currencies and bonds
The Canadian dollar rose slightly and traded above the 76-cent US mark as oil and gold prices gained and the U.S. dollar slid.
The euro recovered on Thursday from its weakest since late June 2017 and the dollar fell after news that a Chinese delegation will travel to the United States for trade talks, with investors buying back into currencies hit hard in the recent sell-off.
The U.S. dollar, which has gained on bouts of investor jitters as traders seek safety in the higher-yielding and most liquid currency, fell after a recent strong run. The dollar index slipped 0.1 per cent to 96.613.
Many emerging market currencies also rose, clawing back some of Wednesday’s losses thanks to easing fears over the knock-on effects from a slide in the Turkish lira.
The yield on Canada’s 10-year bond rose slightly to 2.273 per cent and the U.S. 10-year bond yield was up at 2.877 per cent.
Stocks to watch
Shares of Walmart Inc. jumped 9.6 per cent in premarket trading after the retailer reported a 40 per cent rise in U.S. e-commerce sales during the quarter, faster than the previous quarter’s 33 per cent advance.
Cisco surged 6.9 per cent after its quarterly results and first-quarter sales forecast topped Wall Street estimates.
The French government will support the appointment of Air Canada executive Ben Smith as the chief executive of Air France-KLM, a government source said on Thursday.
Shares of trade-sensitive companies Boeing rose 2.4 percent and Caterpillar gained 1.2 per cent on hopes that Beijing and Washington may resolve a conflict that has roiled financial markets since early March.
Symantec jumped 5.9 per cent after hedge fund Starboard Value LP nominated five directors to its board after taking a 5.8 per cent stake in the cyber-security firm.
JD.com dropped 2.3 per cent after China’s second largest e-commerce firm reported quarterly revenue that missed analysts’ estimates. The result comes a day after Tencent Holdings reported its first profit decline in over a decade, putting pressure on the U.S. technology sector.
JC Penney was trading flat ahead of its results, which is due before market opens. JC Penney and other retailers, including Walmart, slid on Wednesday after Macy’s warned on its gross margins.
Earnings expected include: Applied Materials Inc.; Imperial Metals Corp.; Silver Bear Resources Inc.;
Economic news
(8:30 a.m. ET) Canada’s ADP employment change for June.
(8:30 a.m. ET) Canadian manufacturing shipments for June. Estimate is a rise of 1.3 per cent from May.
(8:30 a.m. ET) U.S. initial jobless claims for week of Aug. 11.
(8:30 a.m. ET) U.S. housing starts and building permits for July.