Turkey’s worsening currency crisis sent world equities lower and emerging market currencies under selling pressure on Monday, while gains in large U.S. technology companies kept benchmark indexes slightly higher.
German bond prices, meanwhile, were boosted by investors seeking stable assets.
The MSCI world equity index, which tracks shares in 47 countries, was down 0.3 per cent and 1.3 per cent since Friday’s open as the Turkish lira plunged to a record low, forcing the country’s finance minister to announce an economic action plan to ease nerves.
The lira has tumbled on worries over President Tayyip Erdogan’s increasing control over the economy and deteriorating relations with the United States. It fell as much as 12 percent at one stage on Monday, then recovered to a loss of 8.5 per cent.
“The plunge in the lira, which began in May, now looks certain to push the Turkish economy into recession, and it may well trigger a banking crisis,” said Andrew Kenningham, chief global economist at Capital Economics. “This would be another blow for EMs as an asset class.”
Emerging market stocks lost 1.88 per cent.
Canada’s main stock index dipped lower on Monday, tracking global losses stemming from Turkey’s worsening currency crisis.
At 11:49 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 41.82 points, or 0.26 per cent, at 16,284.69.
Leading the declines was materials index, which fell 1.3 per cent as a stronger dollar pressured gold prices in the backdrop of a plunging Turkish lira.
Also weighing on the materials index were shares of First Majestic Silver Corp., which fell 12.9 per cent after the miner reported a larger-than-expected loss in the second quarter.
In the United States, early gains by technology giants such as Apple Inc, Amazon.com Inc and Google-parent Alphabet overshadowed declines in financial companies that are the most likely to be affected by the steep decline in the lira.
“The global financial system is so interconnected that we tend to think of them as a group and financials come under pressure,” said Art Hogan, chief market strategist at B. Riley FBR in New York.
The Dow Jones Industrial Average fell 21.79 points, or 0.09 per cent, to 25,291.35, the S&P 500 gained 2.92 points, or 0.10 pe rcent, to 2,836.2 and the Nasdaq Composite added 25.62 points, or 0.33 per cent, to 7,864.73 in mid-morning trade.
The euro fell to a one-year low against the dollar on Monday and sank to a one-year trough against the Swiss franc as well.
European stocks fell in early trade on Monday, with a pan-European index of shares down half a percent and the banking stock index as much as 2.6 per cent lower.
The pan-European FTSEurofirst 300 index lost 0.20 per cent.
Safe-haven government bonds were in demand, with yields on German 10-year debt, the benchmark for the euro zone, dropping to a one-month low.
Benchmark 10-year notes last fell 7/32 in price to yield 2.884 per cent, from 2.859 per cent late on Friday.
Spot gold dropped 1.3 per cent to $1,195.66 an ounce. U.S. gold futures fell 1.30 per cent to $1,203.10 an ounce.
Oil prices edged lower on Monday as troubled emerging markets and trade tensions dented the outlook for fuel demand, though U.S. sanctions against Iran could mean tighter supply ahead. Brent crude futures fell 14 cents to $72.67 a barrel. U.S. West Texas Intermediate (WTI) crude fell 29 cents to $67.34 a barrel.
Futures have struggled to find a footing since Wednesday, after they fell about 3 per cent as a trade dispute between the United States and China escalated further and after Chinese import data showed a slowdown in energy demand.
Turkey’s financial crisis has raised the risk of contagion throughout emerging economies, dragging down South Africa’s rand, Argentina and Mexico’s pesos and the Russian rouble. It has also dented emerging market stocks while curbing growth and the outlook for oil demand.
That is compounding worries that a deepening trade war between the United States, China and the European Union will squeeze business activity in the world’s biggest economies.
Turkey is a relatively small oil consumer, accounting for less than 1 million barrels per day (bpd), or around 1 percent of global demand. However, contagion concerns are prompting risk-off sentiment, Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
“The energy complex is being increasingly jostled by fresh daily headlines that don’t necessarily have much effect on current supply or demand on a short term basis but could dramatically affect oil balances when looking down the road just a few months,” he said.
The Organization of the Petroleum Exporting Countries forecast lower demand for its crude next year as rivals pump more and said top oil exporter Saudi Arabia, eager to avoid a return of oversupply, had cut production.
In a monthly report, OPEC said the world will need 32.05 million bpd of crude from its 15 members in 2019, down 130,000 bpd from last month’s forecast.
Reuters