World stocks down for fourth day as emerging markets and equities reel
The dollar is near two-week highs amid an emerging-market sell-off; US-Canada trade talks are to resume as the deadline looms for more China tariffs
London — A looming deadline in the US-China trade conflict kept the dollar near two-week highs on Wednesday, inflicting fresh losses on emerging markets and sending world stocks lower for the fourth day in a row.
A public comment period on the possibility of fresh US tariffs on another $200bn worth of Chinese goods ends on Thursday, with expectations that the additional levies will be imposed by US President Donald Trump.
The US and Canada will also resume discussions on Wednesday on revamping the North American Free Trade Agreement (Nafta). Ottawa is not expected to back down on key issues despite Trump’s threats to retaliate.
The dollar is benefiting from these uncertainties, but on Tuesday it also drew strength from upbeat US indicators supporting the case for further interest rate hikes by the Federal Reserve — data showed US manufacturing activity accelerating to more than a 14-year high in August.
Measured against a basket of currencies, the dollar edged 0.1% higher and stands about 1.5% off 14-month highs hit in August. The greenback’s rise — up almost 8% since end-March — has sent emerging markets reeling, with MSCI’s emerging-markets equity benchmark falling for the sixth day in a row and down 1.6% on the day, while an index of emerging-market currencies shed 0.4% to 15-month lows.
European shares retreated 0.7% to two-month lows, following weak closes in Asia, where expectations of US tariffs sent Chinese shares down almost 1%.
"Until last month, people were focusing on US company earnings but now they are looking closely at what’s happening in emerging markets, at the trade war and the fact that the US is likely to implement another wave of tariffs against China," said Christoph Barraud, an economist at Paris-based brokerage Market Securities. "If you look at global growth, more and more signs are that it will slow in coming months."
The growth outlook fears, particularly for the developing world, were encapsulated by SA where, on Tuesday, data showed the economy slipping into recession for the first time since 2009. The rand has subsequently joined the Turkish lira and Argentine peso in a relentless sell-off, falling 1.5% and adding to the previous day’s 3% slump.
Argentina’s peso fell again on Tuesday, even though International Monetary Fund (IMF) chief Christine Lagarde confirmed the IMF was working to improve a $50bn standby finance deal for the country. The peso has shed more than half its value to the dollar this year, with the Turkish lira a close second, having fallen more than 40%. There were also fresh signs of distress in Indonesia, where the central bank continued to intervene to support the rupiah, which is at its lowest levels since the 1998 financial crisis.
"Rising US rates, weak emerging-market macro-fundamentals and jittery geopolitics make for a poisonous concoction for emerging-market assets," analysts at Danske Bank said. They also highlighted a geopolitical element to the sell-off, noting that Russia and Turkey, at least, had "seen their crises aggravated by geopolitical confrontation with the US".
The trade-war fears are not sparing US markets either, with equity futures indicating a weaker open on Wall Street. US stocks weakened on Tuesday, with big drops in heavyweights such as Facebook and Nike.
All these concerns alongside the interest-rate outlook mean the dollar’s safe-haven appeal is likely to remain intact. The greenback was at a near one-week high against the yen while the euro slipped 0.20% following a loss of 0.35% on Tuesday.
"In a context where US growth is still resilient, it supports a Fed rate hike in September and likely also in December," Barraud said. "There is focus on the growth differential [between the US and the rest of the world]." One bright spot was Italy, where the mood has been lifted by signs the coalition government has abandoned plans for a spending binge that would have risked credit-rating downgrades and put Rome on collision course with the EU.
Italian stocks rose modestly, contrasting with declines elsewhere and sovereign borrowing costs fell — 10-year bond yields slipped under 3% for the first time in more than two weeks.
On commodity markets, oil prices fell, weighed down by the stronger dollar and as a tropical storm impacted US Gulf coast production less than initially expected.