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Opening Bell: Turkish Contagion Fears Plague Global Markets; USD, Yen Jump

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewAug 13, 2018 06:30
ca.investing.com/analysis/opening-bell-turkish-contagion-fears-plague-global-markets-usd-yen-jump-200197414
Opening Bell: Turkish Contagion Fears Plague Global Markets; USD, Yen Jump
By Investing.com (Pinchas Cohen/Investing.com)   |  Aug 13, 2018 06:30
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  • Turkey's central bank fails to boost lira after Erdogan’s defiant speech

  • Investors sell off equities, EM FX on contagion fears, rotate into USD, yen, Treasurys

  • WTI prices fluctuate between contrasting themes

Key Events

Global stocks sold off alongside futures on the S&P 500, Dow and NASDAQ 100 on Monday, as investors fret over contagion risks from Turkey's economic crisis and sought refuge in the dollar, the yen and US Treasurys.

USD/TRY Daily Chart
USD/TRY Daily Chart

The Turkish central bank's intervention to boost liquidity, which comes after President Recep Tayyip Erdogan's defiant speech on Friday, fell short of sparing the lira from hitting a fresh record low—its seventh within the last eleven sessions—as fears over the country's fiscal and current accounts deficit deepened. Erdogan had recently pressured policymakers to keep interest rates low, even the inflation hit a staggering 16 percent growth rate in July.

The STOXX 600 dropped 0.4 percent to a three-week low in early European trade and the Dow Jones EURO STOXX Banks lost 1.41 percent to a six-week low, both dragged lower by European banks' exposure to Turkish risk. Spain's bank BBVA, Italy's UniCredit and France's BNP Paribas were down 3.49, 3.37 and 1.07 percent respectively at 10.33am GMT.

Earlier, during the Asian session, Turkish uncertainty spread to neighboring markets, replacing US-China trade war worries and weighing down on regional shares. Japan's TOPIX was the main laggard, plunging more than 2.13 percent after opening with a falling gap. The index stands half-percent of the July trough.

Hong Kong’s Hang Seng shed 1.52 percent while China's mainland index, the Shanghai Composite, held stronger, losing 0.34 percent. South Korea’s KOSPI slipped 1.5 percent. Australia's S&P/ASX 200 outperformed its regional peers, in line with its recent trend, retreating 0.42 percent.

Global Financial Affairs

S&P 500 Daily Chart
S&P 500 Daily Chart

US majors sold off Friday, giving up their chance to seal a sixth consecutive weekly advance. The S&P 500 slid 0.71 percent, led by Materials (-1.44 percent), the sector most directly impacted by tariffs headwinds. The only bright spot was Energy (+0.61 percent), which tracked the price of crude higher.

The Dow Jones Industrial Average dropped 0.77 percent and the NASDAQ Composite retreated 0.67 percent. Domestic stocks listed on the Russell 2000 outperformed their larger-cap counterparts, with the index limiting losses to 0.24 percent.

In FX markets, contagion worries sent emerging markets currencies lower. The South African rand hit its lowest intraday level since 2008, when investors rushed to the US dollar. Interestingly, investors have shunned gold as a safe haven for some time now, due to rising interest rates in the US.

The Canadian loonie was down 0.12 per cent against the U.S. greenback early Monday, trading at 0.7602.

DXY Daily Chart
DXY Daily Chart

The Dollar index reached 96.50, a yearly high, extending an upside breakout to a bullish ascending triangle, where demand has been outpacing supply.

WTI Daily Chart
WTI Daily Chart

The price of oil has been swinging between gains and losses amid ongoing fears of Iranian supply glitches on one side and signs of a potential increase in American output on the spreading Turkish crisis. WTI crude jumped about 1.25 percent on Friday after it reached an uptrend line since mid-February.

Up Ahead

  • Earnings continue this week with:

    • Home Depot (NYSE:HD), due tomorrow before market open, $2.84 EPS forecast VS $2.25 for same quarter last year.

    • Cisco (NASDAQ:CSCO), due Wednesday after market close, $0.63 EPS forecast, VS $0.55 percent for last year’s same quarter.

    • Walmart (NYSE:WMT), due Thursday before market open, $1.21 EPS forecast VS $1.08 for the same quarter a year earlier.

Bonds

Canada’s 10-year yield was down early Monday at 2.286, a 0.69-percent decrease.

Opening Bell: Turkish Contagion Fears Plague Global Markets; USD, Yen Jump
 

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Opening Bell: Turkish Contagion Fears Plague Global Markets; USD, Yen Jump

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