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Shares, emerging market currencies steady after mauling

Bruised world shares and emerging market currencies fought to regain their footing yesterday after China said it will hold trade talks with the United States later this month and Turkey’s lira continued its recovery run.

Asian equities had hit one-year lows overnight as they tracked Wednesday’s global falls and Tencent results disappointed, but a fresh high for London’s FTSE and modest gains elsewhere pulled Europe and Wall Street futures up.

At the same time a dip in the dollar, the sight of the lira moving back to 5.8 per dollar and a higher Chinese yuan also steadied emerging market currencies such as South Africa’s rand, Russia’s rouble and Mexico’s peso.

Emerging market stocks did nudge lower again, though, after they had crossed the 20 per cent peak-to-trough threshold that defines a ‘bear’ market. Metals markets also clawed higher, however, after copper had also entered 'bear' territory.

China yesterday said a delegation led by its vice commerce minister would travel to the United States for talks in late August at the invitation of Washington.

Hopes that it could ease trade tensions helped Chinese stocks pare losses, with both Shanghai Composite Index and Hong Kong’s Hang Seng index each down 0.8 per cent. Earlier in the day, Shanghai was down as much as 1.9 per cent while Hong Kong was off 1.7 per cent.

Japan’s Nikkei average closed 0.1 per cent lower in choppy trade, with the benchmark falling as much as 1.5 per cent before a brief swing into positive territory on China news.

The euro rose 0.2 per cent from a 13-1/2 month low and the offshore Chinese yuan gained 0.8 per cent following the Sino-US trade talk news. US stock futures jumped 0.5-0.8 per cent.

“The news (of the China-US trade talks) triggered short-covering but I think fundamentally it is of limited significance,” said Yasuo Sakuma, chief investment officer at Libra Investments.

He said Turkey’s market swings reflect the fact that it is one of the more vulnerable parts of the global economy at this stage in the interest rate cycle, as the Federal Reserve seeks to normalise US monetary policy.

However, Mr Sakuma noted there were arguably larger risks for investors, such as the weak earnings from Tencent Holdings.

Italy’s stock market sank 1.6 per cent to its lowest level since April 2017 as motorway operator Atlantia fell 20 per cent. The Italian government said it could be heavily fined following the deadly collapse of a bridge in Genoa.

Though metals strengthened, oil prices were also left flat after data showed a surprise weekly increase in US crude stockpiles, compounding worries about a weaker global economic growth.

Brent was at just over $71 a barrel and US crude oil last stood at $65.17, having fallen to two-month lows of $64.42, following Wednesday's 3.2 per cent fall.

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