Global trade worries haven't disappeared, they're just on hiatus as market participants regroup and strategize in this unorthodox trade and foreign policy environment.
Emerging market worries are not going away any time soon and are heading toward bear market territory. U.S. Treasury Secretary Steve Mnuchin stated Thursday that Turkey would face more sanctions if the country did not release a detained American pastor, which, coupled with a weeklong Turkish public holiday beginning Monday, should provide further volatility in emerging markets.
For now, the possibility of a Sino-U.S. trade deal has brought some calm to the market, but trade and currency wars remain to the fore.
Euro equities opened in the black after Asian bourses closed out a volatile week on a positive note. Both the U.S. dollar and Treasuries were trading steady.
Here are five things the global markets were talking about on Friday, August 18.
1. Asian Shares Gain On Sino-U.S Trade Talks
In Japan, the Nikkei rallied overnight on hopes that talk between China and the U.S. on August 21-22 will ease trade tensions. The Nikkei share average ended 0.4 percent higher, while the broader Topix added 0.6 percent.
Note: China and the U.S. are due to implement the next round of tariffs on August 23, in addition to taxes that took effect on July 6.
Down-under, Aussie shares rallied overnight, supported by financials and stronger earnings. The S&P/ASX 200 index closed 0.2 percent higher. The benchmark closed unchanged on Thursday and recorded a weekly gain of about 1 percent. In South Korea, the Kospi stock index ended higher on Sino-U.S. trade talk news. The Kospi was up 0.28 percent. For the week, the benchmark index tumbled 1.6 percent, marking its biggest weekly loss since five-weeks.
In China, shanghai stocks closed off their 31-month low overnight, dragged down by a slump in healthcare firms amid vaccine scandal fallout. The blue-chip CSI300 index ended 1.5 percent down at 3,229.62 points, while the Shanghai Composite Index closed down 1.3 percent. In Hong Kong, the Hang Seng Index, starting down for a fifth consecutive session Thursday, gained 0.42 percent as tech stocks recovered.
In Europe, regional bourses trade sideways, however, the potential of renewed Sino-U.S talks is helping risk sentiment going into the weekend, but the treat of further Turkey sanctions will sour investor risk appetite.
2. Oil Prices Slip
Oil prices have eased a tad in overnight trading, with U.S crude heading for a seventh-weekly decline amid market concerns about slowing global growth that could hit demand as U.S inventories build.
Brent crude oil is down 9c at $71.34 a barrel, while U.S West Texas Intermediate (WTI) crude has fallen 5c to $65.41 a barrel.
Note: Brent is heading for a 2 percent decline this week, a third consecutive weekly drop, while WTI is on track for a seventh week of losses, with a fall of more than 3 percent.
EIA data this week showed that output of U.S crude rose by 100,000 bpd in the week ending August 10,to 10.9 million bpd. At the same time, U.S crude inventories climbed by 6.8 million barrels, to 414.19 million barrels.
Ahead of the U.S open, gold prices are small better bid, nevertheless, the yellow metal is set for its biggest weekly fall in 15 months.
For the week, spot gold has shed 2.9 percent, its sixth consecutive weekly decline. It hit its lowest since January 2017 at $1,159.96 yesterday on some aggressive stop-loss selling.
3. CBRT Average Cost Of Funding To Rise
The Central Bank of the Republic of Turkey (CBRT) cost of funding will rise to 19.25 percent today, from 18.14 percent on Thursday, after the bank did not open a repo auction for the second consecutive day.
The current weekly repo rate is at 17.75 percent, but the CBRT has decided not to fund the market at that rate due to "unhealthy price formations and excessive fluctuations in the market" during this currency crisis that has seen the TRY crash to a record low.
In a speech overnight down-under, RBA Governor Lowe indicated that the domestic economy is moving in the right direction. He reiterated the view that he expected the next move in interest rates is to be up, but the board's view is likely to hold rates steady for a while yet. The most likely trigger for a rate cut would be "China shock" and he still believed that a lower AUD (A$0.7263) would be helpful.
4. The Lira's Rally Halted
The USD was a tad softer overnight versus the Turkish lira TRY, but that fall has since halted ahead of the U.S. open on fear of further U.S sanctions to be imposed on Turkey. Other emerging market currencies (ZAR, RUB, IDR and INR) are again under pressure.
The Turkish government announced a number of measures yesterday: the country will curb forex funding and review Turkey's investment portfolio.
Turkey is preparing for a week-long public holiday beginning mid-day Monday.
Note: TRY plunged to a record low of $7.24 at the beginning of the week as a worsening of relations between Turkey and the U.S added to losses driven by concerns over President Erdogan's influence over the CBRT.
The EUR/USD was slightly higher in the session and hovered within striking distance of the psychological €1.14 level, supported by this morning's Eurozone July final CPI reading.
China guided the yuan 0.1 percent stronger outright after a string of lower fixes. The PBoC put today's reference rate at ¥6.8894, vs. ¥6.8946 on Thursday. The yuan rose as much as 0.4 percent Thursday before ending at ¥6.8960. Expect the U.S to pressure China to lift the yuan at next week's talks.
5. Eurozone July Final CPI Stays Above The ECB target
Data from Eurostat this morning showed that the eurozone annual inflation rate was 2.1 percent in July 2018, up from 2 percent in June 2018. A year earlier, the rate was 1.3 percent.
E.U annual inflation was 2.2 percent in July 2018, up from 2.1 percent in June. A year earlier, the rate was 1.5 percent.
The lowest annual rates were registered in Greece (0.8 percent), Denmark (0.9 percent) and Ireland (1 percent). The highest annual rates were recorded in Romania (4.3 percent), Bulgaria (3.6 percent), Hungary (3.4 percent) and Estonia (3.3 percent).
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