Wednesday August 15th

15-08-2018

Dow set to drop more than 150 points as Turkey crisis weighs

U.S. stock index futures came under pressure ahead of Wednesday's open as lingering concerns over Turkey's financial crisis weighed on investor sentiment.  Around 8:45 a.m. ET, Dow Jones Industrial Average futures fell 161 points, indicating a decline of 154.92 points at the open. S&P 500 and Nasdaq 100 futures also pointed to a downbeat start to the day. A Turkish regulator said Wednesday it was limiting banks' currency swap transactions. The move is likely aimed at curbing short selling against the lira, which has recently taken a beating. The Turkish lira fell to a record low earlier this week as global investors fear Turkey's economic troubles could spell trouble for other economies around the world. Last month, Turkey's inflation rate hit 16 percent, well above the central bank's 5 percent target. Pedro Martins, a strategist at J.P. Morgan, reiterated his underweight rating on Turkish equities, noting "we need to see comprehensive macro and policy response" to revisit the recommendation. "J.P. Morgan's macro team believes that a policy response would need to consist of the following components: policy rate hikes between [5 percent and 10 percent], fiscal commitment to backstop and recapitalize banks and deal with problem loans, targeted fiscal support for the most distressed sectors – a general policy framework which acknowledges the need for deleveraging and recognizes a recession is a natural side-product of this process," said Martins in a note Tuesday. The sharp decline also comes after a Turkish delegation left Washington without apparent progress on the detention of U.S. pastor Andrew Brunson, sparking fears of U.S. sanctions. Last week, U.S. President Donald Trump said he was in support of doubling metal tariffs on Turkey. Ankara's government announced new levies on American cars, cigarettes and alcohol. In earnings news, Macy's reported better-than-expected earnings, but the stock fell more than 5 percent in the premarket. Tech shares contributed to the decline as Facebook, Apple, Netflix and Alphabet all traded lower. The move down in tech comes after China's Tencent reported its slowest revenue growth rate since 2015. Asian shares closed mostly lower in Wednesday trade, shrugging off the positive tone on Wall Street, as the dollar held firm in the wake of Turkey's currency crisis. Greater China markets slid, with the Shanghai Composite falling 2.06 percent to close at 2,723.64, notching a third straight session of declines. The blue-chip CSI 300 index lost 2.38 percent for the day. Hong Kong's Hang Seng Index traded down 1.6 percent by 3:00 p.m. In Japan, the Nikkei 225 declined 0.68 percent, or 151.86 points, to close at 22,204.22 following the last session's near 500-point bounce. A weakening global economic growth outlook and a report of rising U.S. crude inventories weighed on oil prices on Wednesday, even as U.S. sanctions threatened to curb Iranian crude supplies. Global benchmark Brent crude oil was down 56 cents a barrel at $71.90 by 8:31 a.m. ET (1231 GMT). U.S. light crude fell 69 cents, or 1 percent, to $66.35. Gold fell to a more than 18-month low on Wednesday as the dollar climbed towards its highest in over a year on concerns about global market contagion triggered by recent declines in the Turkish lira. Spot gold was down 0.6 percent at $1,186.93 an ounce, after hitting its lowest since late January 2017 at $1,183.47. The precious metal failed to make a convincing rebound in the previous session after it fell below the psychologically important $1,200 level for the first time in more than a year on Monday. U.S. gold futures were down 0.6 percent at $1,193.90 an ounce.