World index wobbles on US-China talks

TURKISH LIRA’S RECOVERY RUNS OUT OF STEAM, DROPS 8.5% TO DOLLAR

Caution seeped back into world markets yesterday, with news of US-China trade talks offset by an end-ofweek wobble in emerging markets as the Turkish lira’s recovery ran out of steam.

Falls in Europe left MSCI’s All-Country World index, which tracks shares in 47 countries, less than 0.1 per cent higher on the day and heading for its third straight weekly fall.

Futures indicated a lower open on Wall Street. A Chinese delegation led by Vice-Minister of Commerce Wang Shouwen will meet US representatives, China’s Ministry of Commerce said in a statement, with the Wall Street Journal reporting that talks will take place in Washington on August 21 and 22.

The world’s two largest economies are due to slap tariffs on billions of dollars of each other’s goods on August 23, in addition to levies that took effect on July 6.

“There is still a great deal of difference between agreeing to talk and coming to an agreement,” said CMC Markets analyst Michael Hewson.

“For now it appears an escalation has become less likely, hence yesterday’s rebound in equity markets,” he added, referring to an overnight rally on Wall Street.

Turkey’s lira, meanwhile, dropped as much as 8.5 per cent to 6.3 per dollar, having recovered ground rapidly in recent days. It was last down by about 4 per cent.

The currency plunged to a record low of 7.24 per dollar at the start of the week as a worsening of relations between Turkey and the US added to losses driven by concerns over President Tayyip Erdogan’s influence over monetary policy. The currency has lost a third of its value this year.

The US and Turkey have exchanged tit-for-tat tariffs in an attempt by Trump to pressure Turkish President Tayyip Erdogan into releasing detained American pastor Andrew Brunson, who denies charges that he was involved in a coup attempt against Erdogan two years ago.

US Treasury Secretary Steven Mnuchin assured President Donald Trump at a cabinet meeting that sanctions were ready to be put in place unless Brunson was freed.

Turkey’s central bank meets next on September 13. Ratings agency Standard & Poor’s is scheduled to release a review of Turkey’s sovereign credit rating after the market close yesterday.

Memories of past emerging market crises, such as the Asian financial turmoil of 1997 and Turkey’s 2001 crisis, came back to haunt investors this week and prompted a wave of selling across emerging market assets as a whole.

For now it appears an escalation has become less likely, hence yesterday’s rebound in equity markets.” Michael Hewson | CMC Markets analyst

Lone bull amid bears

Global stocks suffered this week as the sell-off spilt into developed markets, adding to the angst over US-China trade relations and the fiscal prudence of Italy’s anti-establishment government.

Emerging market stocks entered a technical bear market as the sell-off intensified, registering a 20 per cent drop.

There was more gloom elsewhere, with European banks and copper falling into bear market territory.

Other emerging market currencies such as the South African rand and the Mexican peso dipped 1 per cent and 0.6 per cent respectively.

20% drop in emerging market stocks