Emerging markets and equities reel

  • 05/09/2018
Stock Market - Arrow Graph Going Down on Blue Display
Photo credit: File

A looming deadline in the US-China trade conflict has kept the dollar near two-week highs, inflicting fresh losses on emerging markets and sending world stocks lower for the fourth day in a row.

A public comment period on possible fresh US tariffs on another US$200 billion (NZ$305 billion) of Chinese goods ends on Thursday, with expectations the added levies will be imposed by US President Donald Trump.

The United States and Canada will also resume discussions on Wednesday on revamping the North American Free Trade Agreement.

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 inched 0.10 percent higher and stands around 1.5 percent off 14- month highs hit in August.

The greenback's rise - up almost 8 percent since end-March - has sent emerging markets reeling, with MSCI's emerging equity benchmark falling for the sixth day in a row and down 1.6 percent on the day while an index of emerging market currencies shed 0.4 per cent to 15-month lows.

European shares retreated 0.7 percent to two-month lows following weak closes in Asia, where expectations of US tariffs sent Chinese shares down almost 1 percent .

"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 the US is likely to implement another wave of tariffs against China," said Christoph Barraud at Paris-based 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 South Africa where data on Tuesday 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 percent and adding to the previous day's 3 percent slump.

Argentina's peso fell again on Tuesday, even though International Monetary Fund chief Christine Lagarde confirmed the IMF was working to improve a US$50 billion standby finance deal for the country.

The peso has shed more than half its value to the dollar this year, with Turkish lira a close second, having fallen more than 40 per cent.

There were fresh signs of distress also in Indonesia, where the central bank continued to intervene to support the rupiah, which is at its lowest levels since the 1998 financial crisis.

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 versus the yen while the euro slipped 0.2 percent following a loss of 0.35 percent on Tuesday.

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.

Reuters