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A new month, but the same mantra: trade concerns continue to simmer and erode risk appetite as emerging markets slide.

On Tuesday it was emerging market currencies, now on Wednesday it's global equities that are under stress, pressured by EM contagion fears. The U.S. dollar continues to find support for a fifth consecutive session while commodities fall, led by oil. The U.S. 10-year note yield hovers atop of 2.89 percent.

On the trade front, Canada resumes Nafta talks in Washington and is determined not to back down on key issues despite threats from President Trump to retaliate against the Canadian economy.

With this factors in mind, here are five things the global markets were talking about Wednesday morning.

1. Asian Stocks Stumble

Soured sentiment left several Asian stock markets with their biggest declines in a fortnight, at least since the bout of emergins market worries that were fuelled by the Lira's plunge.

In Japan, equities held up better than most, perhaps helped by the overnight yen softness. Nevertheless, investors remain worried that U.S-China trade war could escalate weighed on sentiment. The Nikkei share average dropped 0.51 percent for a fourth consecutive session while the broader Topix fell 0.77 percent.

Down-under, Australian shares extended their losses for a fifth consecutive session overnight, closing down 1 percent, brushing aside a robust economic growth report (Q2 GDP +0.9% vs. +0.7%) as materials stocks slid on weaker commodity prices. In South Korea, the Kospi plunged 1.03 percent as trade war fears intensify.

In Hong Kong, stocks posted their biggest loss in 11-weeks on growth and trade war fears. Overnight, investors' dumped property, energy and tech stocks amid worries about China's economy and the trade war. The Hang Seng index fell 2.6 percent, while the China Enterprises Index lost 2.3 percent.

2. Oil Falls As U.S. Storm Threats Ease

U.S. crude oil prices were under pressure as tropical storm Gordon hit the U.S. Gulf coast much weaker than expected, offsetting support from forecasts of lower U.S. inventories and sanctions against Iran.

Crude prices rallied yesterday as oil companies shut a number of offshore platforms in anticipation of damage from the tropical storm — the market had anticipated the storm would strengthen to a hurricane.

Brent crude fell 47c to $77.70 a barrel while U.S light crude (WTI) moved down 72c to $69.15.

Investors will take their cue from Wednesday's inventory report — API releases its supply report at 04:30 EDT, a day later than usual because of the Labor Day holiday on Monday.

Crude prices could gain support if this week's U.S. inventory reports show a drop in crude stocks, as expected. The market is expecting a drawdown of around 2 million barrels last week.

3. Italian Yields Extend Their Fall On E.U. Budget Remarks

Italian bond yields were under pressure after the Italian government moved to reassure investors that E.U. fiscal rules would be respected. Nevertheless, further budget talks may affect BTP yields further.

Italy's 10-year yield spread over Germany (+257 bps) is at its narrowest point since August 10, but it still remains elevated at some-50 bps above recent lows in July, and 150 bps wider than pre-election levels.

The market remains concerned that increased government spending will see Italy breach E.U. fiscal rules and back up Italian yields even further.

Elsewhere, the yield on both U.S. 2-year and 10-year notes declined less than 1 bps. In Germany, the 10-year Bund yield was flat at 0.36 percent.

4. Emerging Markets Contagion Fears Support The Dollar

September is carrying on August's trend: safe-haven flows continue to support the U.S. dollar for a fifth consecutive session as the public comment period related to the U.S.'s proposed tariffs on another $200B of China goods is set to end Thursday.

EUR/USD is softer, trading below the psychological €1.1600 handle despite bullish comments from Italian government officials that they will respect E.U. budget laws.

GBP/USD continues to probe its multi-week lows on Brexit concerns. The BoE is likely to remain on hold until after the March 2019 Brexit deal. Better Services PMI data helped to support pound into the U.S session.

Emerging market currencies continue to weaken. The South Africa's ZAR hit a new 2-year low around the $15.70 level eary Wednesday morning.

Note: South Africa officially entered a recession after Tuesday's GDP data was released. Q2 GDP annualized q/q: -0.7% vs. +0.6%E; y/y: +0.4% vs. +1.0%E. It is the country's first recession since 2009.

5. Sterling Not Budged By U.K. Services PMI

Data this morning showed that Britain's large services sector picked up more strongly than expected last month, bucking a slowdown for manufacturers and construction firms. But Brexit worries are dampening investment plans and confidence for the next 12-months.

The IHS Markit/CIPS Purchasing Managers' Index (PMI) increased to 54.3 in August from 53.5 in July, beating market expectations.

"Adding in manufacturing and construction sector data published on Monday, the PMI pointed to a repeat of the overall economy's +0.4% quarterly growth rate recorded in the three-months to June," IHS Markit said.

Note: The U.K economy has slowed since the June 2016 Brexit vote, its growth rate slipping from top spot amongst the G7 group to elbowing with Japan and Italy for last spot in the growth rankings.

Related Links:

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Government News Bonds Emerging Markets Eurozone Commodities Forex Markets


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