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


  • 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 , and on Monday, as investors fret over contagion risks from Turkey’s economic crisis and sought refuge in the , the 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 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 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 , Italy’s and France’s 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 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 shed 1.52 percent while China’s mainland index, the , held stronger, losing 0.34 percent. South Korea’s slipped 1.5 percent. Australia’s 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 slid 0.71 percent, led by (-1.44 percent), the sector most directly impacted by tariffs headwinds. The only bright spot was (+0.61 percent), which tracked the price of crude higher.

The dropped 0.77 percent and the retreated 0.67 percent. Domestic stocks listed on the 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 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 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 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

  • China releases , and data on Tuesday.

  • Canadian is released Thursday.

  • Canadian for June are released Thursday.

  • Brexit talks between the EU and the UK resume in Brussels on Thursday. EU officials are looking at September as the decisive deadline, while UK Prime Minister Theresa May favors a late-fall deadline.

  • Australian central bank’s Governor testifies before Economics Committee on Friday.

Bonds

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



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