Asian markets suffered a choppy week, especially in China, as trade war fears continued to dominate investor sentiment. By the close of the week Chinese markets were leading however, as investors managed to shake off their anxieties by the close of trading, Friday. The Shanghai Composite gained 2.1% for the week, while the Hang Seng in Hong Kong had it even better, rising 2.5%. This comes off weekly losses of 4.6% and 4.0% respectively the week before. Japan saw the Nikkei give back a weekly gain in the final session, to post a 1.0% weekly loss. South Korea also gave back weekly gains, erasing four sessions of gains on the final session of the week to edge lower by 0.1% on a weekly basis. Rounding things out, Australia’s S&P/ASX 200 added 0.7% for the week.
The coming week is likely to see continued concerns over U.S. – China trade policies, especially as both countries look to expand their trade tariffs. Another issue that has come to the forefront, which could affect Japanese markets, is the increasing financial instability in Turkey. Investors have become concerned that this will spread to other countries, keeping the Yen strong and weighing on Japanese equities. Australia could see a mixed picture, as basic metals showed strength late last week; but crude was falling on both supply and demand concerns. Chinese markets can be expected to continue seeing daily volatility.
European markets unwound all their modest weekly woes in the final session of last week. The losses came on investor fears of Turkey’s financial crisis spreading to European banks or to eurozone countries. By the close on Friday, the pan-European Stoxx Europe 600 was down 0.9% on a weekly basis. Germany’s DAX fell 1.5% for the week and the CAC 40 in France had a 1.2% weekly loss. Both indices had their worst weekly losses since late June. In Italy the FTSE MiB underperformed as it fell 2.4% for the week, while the IBEX 35 in Spain was 1.4% lower on a weekly basis.
Concerns over the situation in Turkey mounted overnight last Friday as the Lira fell more than 16% against the U.S. dollar and Turkish President Recep Tayyip Erdogan called for his citizens to sell all their U.S. dollar and gold holdings. European investors had considered the Turkish currency crises as a local event, but with the Lira falling some 27% last week there are concerns that some banks in Italy, Spain and France may have too much exposure to Turkey, which could precipitate a European Union financial crisis. This dynamic will likely drive markets in the coming week, as it is unlikely to resolve itself over the weekend.
With the exception of the Nasdaq, U.S. markets struggled in the past week, despite continuing strong corporate earnings. The threat of a trade war escalating kept a lid on gains, and by the end of the week a financial crisis in Turkey sent U.S. markets into negative territory for the week. The S&P 500 strung together three consecutive losing sessions and had a weekly loss of 0.3%, while the Dow Industrials also had three consecutive losing sessions and a weekly loss of 0.6%. The Nasdaq managed to hold onto a weekly gain of 0.4%, even though it snapped an eight-session winning streak with its Friday loss. Both the Nasdaq and the S&P fell from near record levels on Friday; but analysts feel that losses were within acceptable levels, given the potential for spreading financial distress in the eurozone.
Next week markets won’t be getting much of a boost from corporate earnings, which means they’ll be free to react to global geopolitical stimulus. This financial crisis has been brewing in Turkey since before the start of the year and it’s not likely to go away over the weekend. That means that markets may struggle to move higher, but will end lower anyway as investors hedge against the possibility of financial distress spreading across the European Union.
Gold put together three consecutive winning sessions last week, though, to be sure, the gains were modest and offset by losses in the other two sessions. On a weekly basis gold was down by less than 0.1%. Friday saw the yellow metal edge lower to erase a weekly gain as strength in the U.S. dollar offset haven demand in light of Turkish financial troubles. The coming week could give gold a boost if these problems persist, as the U.S. dollar is less likely to have a broad-based reaction, while haven demand will likely remain strong.
Crude gained during most sessions last week, but the 3.2% loss on Wednesday as traders’ worries about falling demand and rising supply caused a weekly loss of 1.1%. By the end of the week traders had recovered from their demand side worries, following a forecast for rising global demand from the International Energy Agency. There are still worries over supply, which could keep a lid on gains for crude in the coming week.
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|08:30||AUD||RBA Assist Gov Ellis Speaks|
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|15:00||USD||Prelim UoM Consumer Sentiment|