Wall Street Unnerved By Turkey

Stocks went back on the defensive and suffered outsized losses Wednesday when worries surrounding Turkey and its influence on emerging markets rattled global investors and drove the Dow Jones Industrial Average down by more than 300 points, its largest one-day loss in nearly two months. Investors ignored a rebound in the Turkish lira and bullish US economic data to focus on Ankara’s retaliatory trade tariffs and refusal to release a detained US pastor. As a result, all the major market averages are down by more than 1%.

The energy sector is taking the brunt of Tuesday’s sell-off as oil futures shed more than 3% due to an inventory build-up. Industrials are also underwater largely as a result of the stronger dollar with component stocks Boeing (BA), Caterpillar (CAT) and DowDuPont (DWDP) trading with heavy losses. Only the defensive sectors of the S&P 500 are trading higher.

To address the meltdown in the lira, the Turkish central bank tightened capital controls, limiting banks’ ability to short the currency in the swaps market. While the move helped prop up the lira, it failed to restore investor confidence as it comes without corresponding fundamental changes in the country’s monetary policy or foreign currency debt. Global bourses resumed their sell-off with bourses across Asia and Europe trading significantly lower.

Upbeat economic data failed to restore investor confidence. Retail sales were up 0.5% in July and up 0.6% excluding auto sales, as well as sales of autos and gas. All three beat expectations but followed downward revisions to June.

The Empire State manufacturing index improved to 25.6 from 22.6, beating 20.0 estimates, while the NAHB housing market index fell a point to 67, its lowest level since Sept 2017.

Nonfarm productivity increased 2.9% in the second quarter, but unit labor costs were down by a greater-than-expected 0.9%. Also, industrial production increased by just 0.1% in July versus +0.3% estimates, although June was revised higher to 1.0% from 0.6%. Capacity utilization was unchanged at 78.1%.

Finally, business inventories were up an as-expected 0.1%, sales increased 0.3% and the inventory/sales ratio moved down to 1.33 from May’s 1.34.

Crude oil was down $2.32 to $64.72 per barrel. Natural gas was down $0.02 to $2.94 per 1 million BTU. Gold was down $16.30 to $1,184.30 an ounce, while silver was down $0.60 to $14.44 an ounce. Copper was down $0.11 to $2.56 per pound.

Among energy ETFs, the United States Oil Fund was down $3.50 to $13.50 with the United States Natural Gas Fund down 0.41% to $24.12. Among precious-metal funds, the Market Vectors Gold Miners ETF was down 5.47% to 18.69 while SPDR Gold Shares were down 1.42% to $111.46. The iShares Silver Trust was down 3.92% to $13.61.