U.S. Opening Bell: Turkish Contagion Fears Plague Global Markets; USD, Yen Jump

Key Events

Global stocks sold off alongside futures on the S&P 500, Dow and NASDAQ 100 on Monday, as investors fret over contagion risks from Turkey's economic crisis and sought refuge in the dollar, the yen and US Treasurys.

The Turkish central bank's intervention to boost liquidity, which comes after President Recep Tayyip Erdogan's defiant speech on Friday, fell short of sparing the lira from hitting a fresh record low—its seventh within the last eleven sessions—as fears over the country's fiscal and current accounts deficit deepened. Erdogan had recently pressured policymakers to keep interest rates low, even the inflation hit a staggering 16 percent growth rate in July.

The STOXX 600 dropped 0.4 percent to a three-week low in early European trade and the Dow Jones EURO STOXX Banks lost 1.41 percent to a six-week low, both dragged lower by European banks' exposure to Turkish risk. Spain's bank BBVA, Italy's UniCredit and France's BNP Paribas were down 3.49, 3.37 and 1.07 percent respectively at 10.33am GMT.

Earlier, during the Asian session, Turkish uncertainty spread to neighboring markets, replacing US-China trade war worries and weighing down on regional shares. Japan's TOPIX was the main laggard, plunging more than 2.13 percent after opening with a falling gap. The index stands half-percent of the July trough.

Hong Kong’s Hang Seng shed 1.52 percent while China's mainland index, the Shanghai Composite, held stronger, losing 0.34 percent. South Korea’s KOSPI slipped 1.5 percent. Australia's S&P/ASX 200 outperformed its regional peers, in line with its recent trend, retreating 0.42 percent.

Global Financial Affairs

US majors sold off Friday, giving up their chance to seal a sixth consecutive weekly advance. The S&P 500 slid 0.71 percent, led by Materials (-1.44 percent), the sector most directly impacted by tariffs headwinds. The only bright spot was Energy (+0.61 percent), which tracked the price of crude higher.

The Dow Jones Industrial Average dropped 0.77 percent and the NASDAQ Composite retreated 0.67 percent. Domestic stocks listed on the Russell 2000 outperformed their larger-cap counterparts, with the index limiting losses to 0.24 percent.

In FX markets, contagion worries sent emerging markets currencies lower. The South African rand hit its lowest intraday level since 2008, when investors rushed to the US dollar. Interestingly, investors have shunned gold as a safe haven for some time now, due to rising interest rates in the US.

The Dollar index reached 96.50, a yearly high, extending an upside breakout to a bullish ascending triangle, where demand has been outpacing supply.

The price of oil has been swinging between gains and losses amid ongoing fears of Iranian supply glitches on one side and signs of a potential increase in American output on the spreading Turkish crisis. WTI crude jumped about 1.25 percent on Friday after it reached an uptrend line since mid-February.

Up Ahead

• Earnings continue this week with:

• Home Depot (NYSE:HD), due tomorrow before market open, $2.84 EPS forecast VS $2.25 for same quarter last year.

• Cisco (NASDAQ:CSCO), due Wednesday after market close, $0.63 EPS forecast, VS $0.55 percent for last year’s same quarter.

• Walmart (NYSE:WMT), due Thursday before market open, $1.21 EPS forecast VS $1.08 for the same quarter a year earlier.

• China releases industrial production, fixed-asset investment and retail sales data on Tuesday.

• Brexit talks between the EU and the UK resume in Brussels on Thursday. EU officials are looking at September as the decisive deadline, while UK Prime Minister Theresa May favors a late-fall deadline.

• Australian central bank's Governor Philip Lowe testifies before Economics Committee on Friday.