Global Equities Slide Amid Policy Changes in Turkey, China, and Indonesia

August 15, 2018

Turkey raised tariffs on a slew of U.S. imported goods, including the doubling of those on cars and alcoholic beverages. In a move to boost the beleaguered lira by impeding short selling of the currency, Turkish authorities also imposed curbs on currency swaps and similar vehicles. The U.S. dollar is down 3.3% against the lira today but still up over 60% year-to-date.

Share prices, led by tech, fell 2.1% in China and 2.4% in Hong Kong. Beijing officials halted approval of Tencent game licenses.

In the face of a wider current account deficit in Indonesia, intensifying global trade tensions, and Turkey’s crisis, which makes many emerging economies more vulnerable, Bank Indonesia’s key 7-day reverse repo rate was lifted by another 25 basis points to 5.50%. That’s 125 basis points higher than prior to mid-May. The first rate hike since 2014 was announced on May 17. The increase of 25 basis points was followed by hikes of 25 bps after an unscheduled central bank meeting on May 30, and a 50-basis point move on June 29th. A released statement notes, ” Global uncertainty has also been fuelled by the risk of spillovers from the economic shocks in Turkey caused by domestic economic fragilities and the adverse impact of negative sentiment surrounding the authorities’ policies, as well as looming tensions with the US. Bank Indonesia will remain vigilant of the external risks, including potential spillover from Turkey although sound economic fundamentals in Indonesia are indicative of solid national economic resilience, coupled with avowed policy commitment.”

Two Asian markets were closed today in observance of India’s Independence Day and South Korea’s National Liberation Day. Elsewhere in the Pacific Rim, share prices dropped 0.7% in Japan, 1.0% in Taiwan, and 0.3% in Singapore but firmed 0.5% in Australia and 0.8% in Indonesia. Stocks in Europe are down 1.3% in Spain, 1.0% in the U.K., 0.8% in France, and 0.7% in Germany and Switzerland. DOW futures point to a triple-digit decline at the U.S. open.

Commodities have gone south as well, with gold and oil trading 0.7% and 1.2% lower and other metals showing even bigger losses.

10-year sovereign debt yields have slipped 3 basis points in the U.S., 2 bps in the U.K., and a basis point each today in Japan and Germany.

Benefiting from haven-seeking money, the dollar rose 0.3% against the euro, Swiss franc, Aussie dollar, kiwi and loonie. The U.S. currency has also gained 1.1% versus the Mexican peso, 3.3% relative to the South African rand, 1.4% vis-a-vis the Russian ruble, 0.5% against the Chinese yuan, and 0.6% against the Swedish krona. Comparatively small net changes have been registered against sterling (+0.1%) and the Japanese yen (-0.1%).

British consumer prices were flat for a second consecutive month, resulting in an overall July inflation rate of 2.5% and a steady core inflation rate of 1.9%. Retail price inflation slipped to 3.2% overall and 3.3% core. Also in the 12 months through July, producer output prices rose 3.1% (2.2% core), and producer input prices went up 10.9%. Finally, the U.K. government’s house price index recorded a 3.0% on-year advance at midyear, down from 4.9% last January.

Australia’s wage price index in the second quarter of 2018 posted a third consecutive 2.1% on-year increase, leading officials to note that wages have been stablilizing between 2.0% and 2.1% for the past four quarters.

Australian consumer confidence, according to Westpac’s monthly measure, fell 2.3% in August from July’s 4-1/2 year peak.

In July, new house price inflation in China accelerated 0.8 percentage points to 5.8%, a 10-month high.

Indonesia’s trade deficit of $2.03 billion in July was much larger than forecast and the year-earlier level of $0.03 billion. The Irish trade surplus in the first half of 2018, EUR 28.03 billion was 23% greater than that a year earlier. Norway’s trade surplus in January-July of NOK 143.4 billion was likewise 22% bigger than a year earlier.

Turkish seasonally adjusted unemployment rose 0.3 percentage points to 10.6% in May even though the unadjusted jobless rate of 9.6% was 0.6 percentage points less than a year earlier.

U.S. retail sales, industrial production, NAHB housing index and quarterly productivity get reported today.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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