World stock markets rebounded on Tuesday as Turkey’s lira pulled out of a recent nosedive and reassuring data from Germany helped offset the latest wobbles in China’s giant economy.
After three weeks of heavy pounding, the lira on Tuesday recovered some ground, trading at about 6.32 to the dollar, up almost 8 per cent from the previous day’s close after earlier touching 6.2995.
It was supported by news of a planned conference call in which the finance minister will seek to reassure investors concerned by President Tayyip Erdogan’s influence over the economy and his resistance to interest rate hikes to tackle double-digit inflation.
The dollar advanced to a 13-month peak against a basket of major currencies as traders increased their safe-haven holdings of the U.S. currency on worries about the lira-related fallout.
The Turkish currency lost almost 10 per cent on Monday and nerves were briefly tested again as Erdogan urged Turks to boycott U.S. electronic products in response to recent criticism from Washington.
“I don’t believe it’s all over,” said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California. “We are just getting a bit of reprieve from the recent down move.”
The Turks have exhausted the possibility of interest rate hikes and are backed into a corner by their inadequate level of currency reserves, Paul McNamara, emerging markets investment director at GAM Investments in London, said in a note.
A much-needed demand slowdown in Turkey is causing asset quality problems in banks, he said. The role of construction in the Turkish economy, for example, is comparable to that in Spain or Ireland ahead of the European bust a decade ago, he said.
MSCI’s gauge of global equity markets halted a four-day slide to rise 0.36 per cent, while Japan’s Nikkei jumped 2.28 per cent in its biggest one-day gain since March.
In Toronto, the S&P/TSX composite index rose 0.49 per cent, or 79.92 points, to 16,330.67.
Financial stocks jumped 1 per cent with both Bank of Nova Scotia and Toronto-Dominion Bank finished 0.9 per cent higher.
Marijuana producers dropped after Ontario announced plans to delay private-sector sales, leading health care stocks down 4.7 per cent. Canopy Growth Corp. lost 8.3 per cent, while Aurora Cannabis Inc. finished down 9.8 per cent.
The Canadian dollar strengthened against its U.S. counterpart on Tuesday as the currency rebounded from a near three-week low the day before, supported by higher global stock prices and the ebbing threat from a collapse of the Turkish lira.
The Canadian dollar was trading 0.4 per cent higher at $1.3079 to the greenback, or 76.46 U.S. cents. The currency traded in a range of $1.3071 to $1.3135.
On Monday, the loonie touched its weakest since July 24 at $1.3179.
“It appears to be more of a relief rally than anything (Canadian) specific ... reversing some of yesterday’s moves,” said Eric Theoret, currency strategist at Scotiabank.
Wall Street’s three major indexes rose on Tuesday with the S&P 500 posting its strongest gain in three weeks as a string of healthy earnings boosted investor optimism and a rebound in the Turkish lira eased contagion fears.
The S&P 500 and the Dow Jones Industrial Average ended four-day losing streaks with broadbased gains across industry groups.
The Dow Jones Industrial Average rose 112.22 points, or 0.45 per cent, to 25,299.92, the S&P 500 gained 18.03 points, or 0.64 per cent, to 2,839.96 and the Nasdaq Composite added 51.19 points, or 0.65 per cent, to 7,870.89.
European shares steadied after a two-day sell-off as concerns about contagion from Turkey’s currency crisis eased. The pan-regional FTSEurofirst 300 index closed up 0.06 per cent and the benchmark STOXX 600 closed flat.
Data showing the region’s largest economy, Germany, picking up more steam than expected in the second quarter helped sentiment in Europe, though the markets’ bounce might have been bigger had Chinese economic surveys not disappointed.
Investment growth in China slowed to a record low while industrial output and retail sales both missed expectations.
The downdraft for emerging market currencies stopped, with the South African rand, Russian ruble and Mexican peso, a proxy for emerging market currencies, all rising.
Still, MSCI’s emerging markets index for equities fell to its lowest since July 2017 before paring most losses for the day to trade down slightly.
The euro fell, hitting 13-month lows against the dollar and Swiss franc, as traders fretted over the exposure of European banks to Turkey.
The dollar index rose 0.34 per cent, with the euro down 0.6 per cent to $1.134. The Japanese yen weakened 0.46 per cent versus the greenback at 111.23 per dollar.
Oil prices edged lower on Tuesday, weighed down by a strengthening U.S. dollar as investors remained concerned about the financial crisis in Turkey.
Brent crude dipped 15 cents to settle at $72.46 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 16 cents to close at $67.04 a barrel.
Oil rebounded early from the previous session’s slide, supported by gains in equity markets, but pared gains at mid-day as the U.S. dollar index touched its highest since late June 2017. A stronger dollar makes greenback-denominated oil more expensive for holders of other currencies.
“Usually when the dollar starts making highs, it’s probably a sign that we’re still concerned about the Turkish situation,” said Phil Flynn, analyst at Price Futures Group in Chicago. “There’s still a bit of nervousness on the global stage.”
U.S. stock indexes broadly gained and Turkey’s lira recovered, a day after crashing to an all-time low against the dollar, feeding worries that the country’s crisis might spread to other emerging markets..
“The equities and the U.S. dollar are keying primarily off of the unfolding saga in Turkey and although the lira has posted a significant rebound today, the standoff between Turkey and the U.S. is showing no sign of progress,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
“Consequently, worries over contagion are apt to increase in the process of reducing risk appetite and renewing downside pressures on oil pricing.”
Oil’s losses were capped by concerns over lower global crude supply from top producers. The Organization of the Petroleum Exporting Countries said on Monday that Saudi Arabia had cut production. Export declines from Iran also are expected as Washington re-imposes sanctions.
But OPEC expects oil supply by countries outside the cartel to increase by 2.13 million bpd next year, 30,000 bpd more than forecast last month, boosted by new U.S. shale production.
Market participants awaited industry data on Tuesday from the American Petroleum Institute (API) that analysts expect will show U.S. crude and gasoline inventories fell last week. The data is to be released at 4:30 p.m. ET.
Reuters