“Global Stocks Sink as Tencent, Tech Take a Toll: Markets Wrap.”
U.S. stocks joined a broad decline in global equities as disappointing earnings from Chinese internet giant Tencent Holdings Ltd. roiled technology shares and Turkey’s economic woes remained in focus.
The S&P 500 Index fell for the fifth time in six sessions, with robust retail sales data doing little to boost spirits among American investors. Tencent’s first profit drop in at least a decade rattled emerging-market equities and made the Nasdaq 100 Index the worst performer among U.S. benchmarks. Raw-materials producers dragged European shares down as copper and zinc fell to the lowest in more than a year.
In Turkey, the lira gained after the nation’s banking regulator moved to deter short-selling in the currency. While the nation’s assets stabilized, other emerging-market currencies continued to buckle as President Recep Tayyip Erdogan intensified a diplomatic feud with his U.S. counterpart Donald Trump with a spate of new import tariffs.
Amid thin summer trading, investor caution remains in place with the bull market in American stocks just one week away from becoming the longest in history and as trade tensions between China and the U.S. linger. Markets have been rocked over the past week as turmoil in Turkey weighed on sentiment across many emerging- and developed-nation assets. The country announced an additional tax on imports of a broad range of American goods on Wednesday, signaling its spat with the U.S. will continue.
“U.S. retail sales, manufacturing data bolster third-quarter economic outlook.”
U.S. retail sales rose more than expected in July as households boosted purchases of motor vehicles and clothing, suggesting the economy remained strong early in the third quarter.
Other data on Wednesday showed manufacturing output rising steadily last month and worker productivity growing at its fastest pace in more than three years in the second quarter, though a drop in labor costs pointed to moderate wage inflation.
Strong domestic demand supports expectations the Federal Reserve will raise interest rates in September for the third time this year, despite volatility in emerging markets that was sparked by an economic and political crisis in Turkey.
The Commerce Department said retail sales increased 0.5 percent last month. But data for June was revised lower to show sales gaining 0.2 percent instead of the previously reported 0.5 percent rise. Economists polled by Reuters had forecast retail sales nudging up 0.1 percent in July. Retail sales in July increased 6.4 percent from a year ago.
Core retail sales were previously reported to have been unchanged in June. Consumer spending is being supported by a tightening labor market, which is steadily pushing up wages. Tax cuts and higher savings are also underpinning consumption.
GDP surged at a 4.1 percent annualized rate in the April-June period, almost double the 2.2 percent pace in the first quarter. While the economy is unlikely to repeat the second quarter’s robust performance, growth in the July-September period is expected to top a 3.0 percent rate. The Fed increased borrowing costs in June and forecast two more interest rate hikes by December.
“UK inflation rate rises for first time since November.”
UK inflation rose to 2.5% in July, after holding steady at 2.4% in the previous three months, as the cost of transport and computer games increased. It was the first jump in the Consumer Prices Index (CPI) measure since November and was in line with forecasts.
Meanwhile the Retail Prices Index (RPI) measure of inflation fell to 3.2%. The Department for Transport uses the RPI figure to set the maximum annual increase for regulated rail fares.
Despite the rise for CPI, wage growth is still outstripping inflation. On Tuesday, the Office for National Statistics said that average earnings, excluding bonuses, rose by 2.7% for the three months to June.
Wednesday’s inflation figures show that increases in computer games and transport – up 5.6% in the year ending July 2018 – were partially offset by falls in the price of clothing. For manufacturers, the cost of raw materials was 10.9% higher than in July 2017, the biggest rise in more than a year. Much of that cost pressure has been caused by oil price increases of more than 50% over the period.
The CPI figure had hit a five-year high of 3.1% in November, when the inflationary effect of the pound’s fall following the June 2016 Brexit vote reached its peak. Earlier this month the Bank of England forecast inflation would rise to 2.6% in July before falling back. The Bank expects inflation will settle down to just above its 2% target in two years’ time as it gradually increases interest rates.
“Turkey Moves to Ward Off Financial Crisis as U.S. Spat Worsens.”
Turkey took its boldest steps yet to try to ward off a financial crisis by making it harder for traders to bet against the battered lira and easing rules on restructuring troubled loans that have already topped $20 billion.
As President Recep Tayyip Erdogan intensified a diplomatic feud with his U.S. counterpart Donald Trump with a spate of new import tariffs, the nation’s banking regulator published new rules that have so far succeeded at lifting the lira off record lows. Investors continued to demand higher interest rates.
The measures «are aimed at the symptoms of recent lira weakness and not the cause,» said Nigel Rendell, an analyst at Medley Global Advisors LLC in London. «The cure for a persistently weak currency is not rocket science – nor is it liquidity measures and policy tweaks – it is higher interest rates.»
Erdogan, who tightened his grip on power in June elections, is refusing to give in to pressure from Trump to release an evangelical pastor who he accuses of aiding a coup attempt against him two years ago. A court on Wednesday rejected an appeal for the release of Andrew Brunson from house arrest.
The lira rallied 3.9 percent gain to 6.1114 per dollar by 4:01 p.m. in Istanbul, building on Tuesday’s 8.4 percent advance, as the banking regulator gave lenders more flexibility in dealing with Turkish companies that are struggling with debt payments.
It also cut by half the amount of currency swap transactions banks can participate in to 25 percent of shareholder equity, after imposing a 50 percent curb on Monday. By driving up short-term borrowing costs, the move makes it less appealing for investors, like hedge funds, to borrow liras on the offshore swap market so they can bet against, or short, it. The recovery spilled into the bond market, with yields on 10-year local debt falling 25 basis points to 21.12 percent.
Markets weren’t all rosy. The cost of insuring Turkey’s sovereign debt against default — already higher than Pakistan and Greece — increased as the standoff between the two NATO allies took another turn for the worse. Turkey announced on Wednesday a string of new tariffs ranging from 50 to 140 percent on rice, alcohol and cars from the U.S. in retaliation for Trump’s move to slap taxes on Turkish steel and aluminum imports last week.