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The U.S. dollar resumed its rise on Wednesday, surging to new 13-month highs and upping pressure on commodities, emerging markets and global stocks, though the Turkish lira managed out to eke out a second day of gains.

The lira, a big focus for markets in recent days, bounced as much as 8 per cent as authorities tightened the screws on foreign investors aiming to short the currency. But having firmed beyond 6 per dollar, most of its early gains fizzled out.

The rebound follows a 36-per-cent drop over the past month and fears remain that Turkey is headed for full-blown crisis and debt defaults. Failure to tackle galloping inflation and Ankara’s diplomatic tiff with Washington, is also keeping investors wary.

Attention has turned once again to the dollar, which opened Wednesday flat but then strengthened 0.16 per cent against a basket of currencies. It is now up more than 5 per cent this year.

In Toronto, the S&P/TSX composite index was down 70.37 points, or 0.43 per cent, to 16,260.30 at open.

Canopy Growth Corp. jumped 33.3 per cent in early trading after Constellation Brands Inc. announced it would invest $4-billion more in the Canadian marijuana producer. Rival Aurora Cannabis Inc. jumped 10.3 per cent.

The Canadian dollar weakened against its U.S. counterpart on Wednesday as oil prices fell and a 13-month high for the greenback pressured emerging markets and global stocks.

Stocks have been volatile in recent days due to the prospect of an economic crisis in Turkey spreading to other emerging market countries, particularly those that borrow in U.S. dollars.

The greenback rose against a basket of major currencies as data showed U.S. retail sales grew more than forecast in July.

Canada exports many commodities and runs a current account deficit so its economy could be hurt if the flow of trade or capital slows.

The price of oil, one of Canada’s major exports, was pressured by a weakening global economic growth outlook and data showing rising U.S. crude inventories.

U.S. crude oil futures were down 1.1 per cent at $66.31 a barrel

The Canadian dollar was trading 0.4 per cent lower at $1.3117 to the greenback, or 76.24 U.S. cents. The currency, which touched a near 3-week low of $1.3179 on Monday, traded in a range of $1.3051 to $1.3121.

U.S. stocks opened lower on Wednesday as investors assessed the impact of Turkey’s currency crisis and escalating trade tensions between the United States and its trading partners.

The Dow Jones Industrial Average fell 64.55 points, or 0.26 per cent, at the open to 25,235.37.

The S&P 500 opened lower by 12.01 points, or 0.42 per cent, at 2,827.95. The Nasdaq Composite dropped 60.88 points, or 0.77 per cent, to 7,810.02 at the opening bell.

“The dominant theme in financial markets at the moment is the strength of the dollar,” Aviva Investors head of multi-asset funds Sunil Krishnan said. “We see scope for that move to continue.”

“One of the big challenges to risk appetite in markets is if the dollar moves continue and put pressure on riskier assets such as emerging market bonds and so on,” he said.

Krishnan saw the lira bounce as fragile, noting Turkey needed “concrete policy action to improve fundamentals and also some improvement in relations with the United States.”

As the dollar rise hit commodities, European stocks fell half a percent.

Copper prices hit one-year lows, gold slipped to 18-month lows and Brent crude fell almost $1 per barrel . The latest copper slide, with three-month futures down 2.5 per cent, came after a Chilean mineworkers’ strike was averted.

MSCI’s all-country equity benchmark fell half a percent , though it stayed off one-month lows reached on Monday.

The lira collapse and dollar strength are driving a capital exodus from across emerging markets, sending currencies such as the Argentine peso and Indian rupee to record lows. Emerging equities fell 2 per cent, and are down almost 20 per cent from January highs.

There are concerns also about China’s slowing economy - reinforced by this week’s data on investment and industrial output - and the yuan’s weakening to 15-month lows against the dollar. That is also pressuring other Asian markets.

Indonesia, acting after the rupiah fell to three-year lows, raised interest rates for the fourth time since May.

The backdrop to all this is the escalation in global trade tensions, with Beijing now lodging a complaint to the World Trade Organisation to determine the legality of U.S. tariff and subsidy policies.

Turkey has also raised tariffs on some U.S. products “in response to the U.S. administration’s deliberate attacks on our economy,” Vice President Fuat Oktay wrote on Twitter.

Brokerage FXTM’s global head of currency strategy, Jameel Ahmad, said the U.S.-Turkey tensions reminded investors that “it is not just the United States and China that stand at the heart of the global trade war concerns.”

WALL STREET NERVES

There are signs the negative newsflow is starting to affect Wall Street which has so far drawn support from robust company earnings.

The fears are reflected in the SKEW index - a gauge of the cost of put options on the S&P500 index relative to calls.

A put option confers the right to sell an asset at pre-agreed price, while a call offers right to buy. The SKEW has risen this week to the highest since March. A rise in SKEW indicates higher demand for protection against market falls.

Trade and tighter central bank policy were stock market headwinds, according to Aviva’s Krishnan, who reckons the issues need to be “better discounted in terms of market pricing. It’s something investors need to come to terms with in coming months.”

All those concerns have driven investors to embrace more stable assets. Aside from the dollar, that includes German and U.S. government bonds, the Japanese yen and Swiss franc. German and U.S. 10-year yields are down more 10 basis points this month.

The strong dollar’s biggest victims are emerging currencies but its rise is also pummeling the euro and sterling.

The single currency slipped a further 0.2 percent to a new 13-month low versus the dollar and also extended losses against the Swiss franc.

Sterling tumbled to below $1.27 for the first time since June 2017, having lost ground for 11 days in a row, the longest losing streak since 2008.

Reuters

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 17/05/24 4:00pm EDT.

SymbolName% changeLast
WEED-T
Canopy Growth Corp
-1.07%14.81
STZ-N
Constellation Brands Inc
+0.02%255.43
ACB-T
Aurora Cannabis Inc
-2.8%10.05

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