Sector movers: Miners hit again as traders wait for other shoe to drop in EM

The roof is caving in on miners again on Tuesday, amid fears that the recent rout in Turkish assets presages weakness in other emerging market economies.

Compounding matters was a weak showing in some of the main Asian bourses overnight, including Shanghai and Tokyo, alongside weakness in both the yuan and the yen.

All of the above, together with the resulting strength in the US dollar, which was trading at its strongest in 13 months, had led to across-the-board declines for base and precious metals.

September-dated copper futures on COMEX were doing particularly poorly, shedding 3.75% to $2.5815/lb..

"It's a broad based sell-off across Europe as dealers are worried about the currency crisis in Turkey, and the cooling of Chinese growth," said David Madden at CMC Markets UK.

"Natural resource stocks like BHP Billiton, Rio Tinto, Randgold Resources and Glencore are all lower on the session as metals are under severe pressure. Copper, Platinum and Palladium are weaker as traders are concerned the Chinese economy is cooling, and yesterday's disappointing fixed asset investment and industrial production reports from Beijing confirmed their fears.

US dollar-strength was also taking its toll on oil futures, with ICE-traded Brent for front month delivery erasing 2.722% to trade a $70.5 a barrel, and in turn that was weighing on share prices in the oil patch.

So too was a report from America's Department of Energy that commercial crude oil inventories in the US saw an unexpected 6.8m barrel build over the week ending on 10 August.

Somewhat misleadingly, the Greenback was again lower against the Turkish lira on Tuesday, falling by 4.88% to 6.0405, which some observers may have mistaken for a signal earlier in the session that the 'coast was clear'.

Not at all said analysts, some of whom were now waiting for the proverbial "other shoe to drop" in Turkey.

On that note, earlier analysts at TD had highlighted how Turkish policymakers were in fact engineering a 'short squeeze' in short-term rates, even as in public they toed the same line as President Erdogan, refusing to hike their main policy rate.

"Where are rates now? The 1w USD-TRY FX implied yield is now at 32.75% and rising. This is 1385bps higher since 9 August, in excess of our 1225bps call. A liquidity squeeze is pushing market rates higher, i.e. the CBRT is tightening without hiking," they said.

"This is what's helping the lira now: front-end rates are normalizing and above 30%. However, if the CBRT eases rates soon, the lira goes kaput again. If the CBRT doesn't ease, the economy goes kaput instead."

But not all analysts were as alarmed, with IG's Chris Beauchamp pointing out how the lower-than-usual trading volumes typical of August were likely also influencing price moves.

"While already crowded, it looks like a few more people have joined the long-dollar trade, as emerging market jitters encourage more funds into the US currency, seen as a safe haven from both the Turkey crisis and trade wars," he said.

"The ingredients for a classic summer swoon are all there, from rising volatility to an emerging markets crisis, just the thing to provide some excitement before normality returns in September."

Top performing sectors so far today

Pharmaceuticals & Biotechnology 14,881.30 +0.24%

Insurance (non-life) 3,242.54 +0.07%

Alternative Energy 0.00 0.00%

Alternative Investment Instruments NULL 0.00%

Automobiles and related providers NULL 0.00%

Bottom performing sectors so far today

Industrial Metals & Mining 4,357.28 -6.43%

Mining 16,564.91 -4.77%

Oil Equipment, Services & Distribution 13,697.08 -3.56%

Forestry & Paper 23,212.96 -2.74%

Oil & Gas Producers 9,043.13 -2.44%