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Shares regain footing as lira roars out of rout

Stock Markets Aug 14, 2018 05:11AM ET
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© Reuters. Traders work at Frankfurt's stock exchange in Frankfurt

By Marc Jones

LONDON (Reuters) - World share markets regained their footing on Tuesday as the threat from the collapse of the Turkish lira ebbed and reassuring German data offset signs of slowing growth in China.

After three weeks of losses, Turkey's lira finally recovered as the country's central bank moved to ease pressure on the currency, triggering a 7 percent surge to 6.4 per dollar . It still lost almost 10 percent on Monday alone and has shed more than two-fifths of its value so far in 2018.

The rot also stopped for the South African rand, the Russian rouble and the Argentine peso. Argentina's central bank unexpectedly raised interest rates by 5 percentage points on Monday. Even so, the peso hit a record low.

"These things get very volatile in both directions once you have had a really big move," Saxo bank's head of FX strategy John Hardy said. "To suggest this thing is over, you would have to see that Turkey is isolated. I'm not there yet and I don't think the market is there."

European shares also bounced back after two days of selling as anxieties over contagion from the Turkish currency crisis eased.

After falling to a 21-month low on Monday, euro zone bank stocks (SX7E) rose 0.8 percent versus a 0.4 percent gain by the pan-European STOXX 600 (STOXX) cross-sector benchmark (EU).

Data showed the region's largest economy, Germany, picked up more steam than expected in Q2, although the bounce might have been stronger had surveys from China not proved softer than expected.

Chinese retail sales, industrial output and urban investment all grew by less than forecast in July, a trifecta of disappointment that underlined the need for more policy stimulus in China even as trade risks intensify.

The Shanghai blue-chip index (CSI300) was off 0.9 percent and weighing on MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS), which eased 0.25 percent.

Moves elsewhere were mixed. Japan's Nikkei (N225) rose 2.3 percent and Australian stocks (AXJO) added 0.8 percent.

BACK TO THE FUTURES

EMini futures for the S&P 500 (ESc1) were still a fraction higher. Ten-year Treasury yields held at 2.88 percent (US10YT=RR).

Investors were encouraged that U.S. declines were only minor overnight after the losses by the lira and other emerging-market currencies. The Dow (DJI) ended Monday down 0.5 percent, the S&P 500 (SPX) lost 0.4 percent and the Nasdaq (IXIC) fell 0.25 percent. (N)

"The more significant emerging-market concern relates to the risk that regional underperformance becomes a source of disruption through swings in capital flows and currencies," said Matt Sherwood, head of investment strategy at Perpetual.

"While the focus at present is on Turkey, where currency depreciation and rising rates has translated into a marked tightening of financial conditions, it could spread to Mexico, Brazil and India."

Sherwood cited the NAFTA negotiations as a key risk for Mexico and upcoming elections in Brazil and India as potential threats for those two markets.

GOLD LOSES ITS LUSTER

Bond yields in Spain and Italy fell, although the euro was still struggling at $1.1407 (EUR=D3), having touched its lowest since July 2017 on Monday.

It also reached one-year lows against the yen and Swiss franc, safe harbors in times of stress.

The dollar was a touch firmer at 110.95 yen , having hit a six-week trough around 110.10 on Monday. Against a basket of currencies, the U.S. currency (DXY) rose to 96.289 in European trading.

In commodity markets, gold slid to its lowest since late January 2017. It was at $1,1195 an ounce .

U.S. government data last week showed that gold speculators had lifted their bearish bets to a record.

Holdings of the largest gold-backed exchange-traded fund, New York's SPDR Gold Trust (P:GLD) GLD (NYSE:GLD), have dropped about 10 percent from their April peak and are at their lowest since February 2016.

Oil prices rose after a report from OPEC confirmed that top exporter Saudi Arabia had cut production to avert looming oversupply. [O/R]

Brent gained 60 cents to $73.22 a barrel (LCc1). U.S. crude added 64 cents to $67.85 (CLc1).

Shares regain footing as lira roars out of rout
 

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Comments (2)
Brad Smith
Brad Smith Aug 14, 2018 9:11PM ET
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Not only that but even on the subject of GLD's insurance, they are not at all straightforward about it. Their representatives will not confirm nor deny the existence of GLD's insurance. I recommend anyone curious about this to confirm via calling GLD's publicly listed number for general inquiries at 866 320 4053 and ask about this clause from the GLD prospectus: "The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody." Exactly how much of the fund is insured? They will not give you a straight answer and might even throw in some bizarre excuse which I've experienced. Why hide this information from investors? The people behind GLD certainly do not seem like the most honest types.
Brad Smith
Brad Smith Aug 14, 2018 9:10PM ET
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"Holdings of the largest gold-backed exchange-traded fund, New York's SPDR Gold Trust (P:GLD) GLD (NYSE:GLD), have dropped about 10 percent...". . Marc Jones, how reliable are GLD's holding reports? GLD does not give retail investors the right to redeem for any of its mystery physical gold holdings. This fact alone ensures the GLD shares to be nothing more than paper at the end of the day. GLD also has a glaring audit loophole in their prospectus that states they have no right to audit subcustodial gold holdings. To this day, I have not heard of a single good reason for the existence of this backdoor to the fund.. . I remember there was a highly publicized visit by CNBC's Bob Pisani to GLD's gold vault. This visit was organized by GLD's management to prove the existence of GLD's gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this "GLD" bar was actually owned by ETF Securities.
 
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