Global equities again are on the back foot, with a number of regional bourses trading atop of their lowest close of the year, as investors consider the risk of weaker growth thanks due to emerging market worries.
The U.S. dollar continues to hang tough, while the yen has its supporters. Emerging market currency pairs are weaker as the South African rand and Turkish lira remain under pressure.
Immediate market focus has shifted to China on trade and tariffs. Thursday is hump day for President Trump to implement fresh tariffs on another $200 billion in Chinese imports. The public consultation period on Trump's intent to impose additional tariffs on Chinese goods ends at midnight. Investors can expect China to closely watch the impact from any fresh tariffs and adopt strong counter measures.
In other trade news, the Canada-U.S trade talks seemed to be making progress, and the CAD found some early support early in the morning.
With this in mind, here are five things the global markets were talking about Thursday morning.
1. Asian Shares Were A Sea Of Red
Asian bourses slipped for a sixth consecutive session overnight, with investor confidence shaken by the fallout of emerging market woes and worries over an escalation in the U.S.-China trade war.
In Japan, the Nikkei fell on the back of broad weakness in global equities, while the market waits damage assessments after a powerful earthquake in Hokkaido. The Nikkei share average dropped 0.4 percent, while the broader Topix fell 0.7 percent.
The Australian stock market dropped amid investor concerns of a house price squeeze as three of the top four domestic lenders hiked their mortgage rates citing higher funding costs. The ASX/S&P closed down 1.1 percent as investors digested the prospect that rising rates would hurt home prices further. In South Korea, the Kospi index fell as emerging markets turmoil and worries over a potentially escalation in the U.S.-China trade war hurt sentiment.
In China and Hong Kong, shares naturally came under pressure ahead of expected U.S tariffs. China's blue-chip index fell 1.2 percent, while Hong Kong's Hang Seng index stumbled 1.5 percent.
2. Oil Dip Found Support From Looming Iran Sanctions
Oil prices have dipped this morning as emerging market worries weighed on investor sentiment and Trump's public consultation period deadline for China nears. However, U.S. sanctions against Iran have prevented prices from falling further — the sanctions are expected to tighten market supply.
Brent crude futures fell to +$77.23 a barrel, while U.S. West Texas Intermediate (WTI) crude futures are at $68.59 per barrel, down 0.2 percent from Wednesday's close.
Data showed that U.S. crude stockpiles fell last week as refineries boosted output amid strong consumption. API data showed that U.S crude inventories fell by 1.17 million barrels to 404.5 million in the week ending August 31, while refinery crude runs rose by 198,000 bpd.
On Wednesday, OPEC said it expected global oil demand to break through 100 million bpd for the first time this year.
3. Sweden's Riksbank Changes Tightening Schedule
Sweden's Riksbank left interest rates on hold at 0.5 percent and pushed back its forecasts for when it expects to raise interest rates. The Riksbank said it expects to leave rates on hold next month — raising them in either December or February — having previously flagged a likely rate rise in the fourth quarter. The Riksbank raised its average repo rate forecast for Q4 to 0.5 percent, from 0.43 percent previously.
Note: Although Sweden's inflation is close to the 2 percent target, this is largely due to higher energy prices, and while measures of underlying inflation indicate inflationary pressures are "still moderate." EUR/SEK has rallied 0.6 percent to around €10.6050.
A rally in Italian government bonds this week, which has been driving yields lower, is pushing German Bund yields higher, indicating less appetite for safe-havens. The spread of Italy's 10-year bonds over Germany's has climbed 16 bps.
German Bund yields are expected to come under more upward pressure with heavy bond supply from Spain and France pending.
4. Dollar Trades Steady
A lack of market appetite for safe havens currency pairs overnight has kept the USD confined against G7 FX pairs: EUR/USD at €1.1623 area, USD/JPY at ¥111.35 and GBP/USD at £1.2935 ahead of the open stateside.
The EUR/SEK is higher after the Riksbank pushed back its first potential rate hike until Dec/Feb period from its prior view of around year-end. The cross is holding above €10.58.
Down under, a fall in Australia's exports in July resulted in a narrowing of the country's trade surplus. Data released this morning showed that Australia July Trade Balance registered its seventh consecutive surplus – A$1.6 billion versus A$1.9 billion prior. AUD/USD slid marginally with the pair currently trading at A$0.7185.
Emerging market currencies continue to weaken with South Africa's ZAR trading atop of its new two-year low around the $15.30, while TRY is off its intraday session highs at $6.6016.
5. German Manufacturing Orders Drop
Data Thursday morning showed that Germany's manufacturers registered weak orders in July amid a sharp drop in demand from outside the Eurozone. This would suggest that global trade tensions are already weighing on companies' appetite for investments.
Total manufacturing orders fell 0.9 percent on the month, worsening June's 3.9 percent orders drop. Market expectations were looking for a headline gain of 1.7 percent.
Germany's economics ministry said that "global uncertainties from trade conflicts" as well as "temporary bottlenecks" in the approval of new passenger cars due to the new WLTP emissions-testing protocol were partly to blame.
"The backlog of orders in the manufacturing sector is still very high and the business climate has even improved recently," the ministry said.
Digging deeper, while domestic orders rose 2.4 percent in July month-over-month, foreign orders dropped 3.4 percent, led by a 4 percent fall in demand from outside the Eurozone.
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