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Turkish lira hits record low, stocks hit by contagion fear
HONG KONG, Aug 10, 2018 (BSS/AFP) – Turkey’s lira plunged to record lows
Friday as it was buffeted by a diplomatic row with Washington, while European
markets were also feeling the strain from fears the crisis could spill over
into the region’s banking sector.
The troubled currency collapsed 12 percent at one point on concerns about
tensions with the United States linked to Ankara’s detention of an American
pastor as well as economic uncertainty.
The losses Friday extended the previous day’s sell-off as high-level talks
seeking to slacken tensions with the US produced no apparent breakthrough.
The stand-off has led both sides to slap sanctions on senior officials
with concerns of graver measures to come.
At the same time, the Turkish economy under President Recep Tayyip Erdogan
is showing signs of overheating, with the country running a large current
account deficit that makes it heavily dependent on foreign capital inflows.
“The backdrop to endemic lira weakness is of course the familiar one of an
economy suffering rising inflation and a burgeoning balance of payments
crisis alongside a central bank that has in effect been stripped of much of
its independence since Erdogan was re-elected… in June,” Ray Attrill, head
of forex strategy at National Australia Bank, said in a note.
Concerns were intensified Friday by a report in the Financial Times that
the supervisory wing of the European Central Bank (ECB) had over the last
week begun to look more closely at euro zone lenders’ exposure to Turkey.
The report said the situation is not yet seen as “critical” but Spain’s
BBVA, Italy’s UniCredit and France’s BNP Paribas are regarded as particularly
exposed.
London’s FTSE was down 0.6 percent, Paris shed 1.1 percent and Frankfurt
was down 1.3 percent.
The losses followed a sell-off in Asia, which came at the end of a broadly
positive week in spite of tit-for-tat threats of tariffs between China and
the United States.
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ASIA-MARKETS-UPDATE 2 LAST HONG KONG
Hong Kong fell 0.8 percent after a four-day win streak, while Tokyo shed
1.3 percent and Sydney lost 0.3 percent. Singapore, Seoul, Taipei, Mumbai,
Manila and Bangkok also lost ground. However, Shanghai ended the day
marginally higher.
With few major catalysts in the trade stand-off, focus is now on the
release later in the day of US consumer price index data for July, which will
give an idea about price pressures across the country and help guide the
Federal Reserve in its interest rate plans.
The central bank is tipped to lift borrowing costs twice more this year,
having already hiked two times so far as Donald Trump’s massive tax cuts kick
in and the economy continues to hum along.
“If the US consumer prices data for July confirms a steady rise in
inflation, it will support the dollar on the back of speculation that the
Federal Reserve will hike interest rates again in September,” said Kengo
Suzuki, forex strategist at Mizuho Securities.
Chicago Fed President Charles Evans backed “somewhat restrictive” rate
levels to offset the fiscal stimulus, citing the possibility of inflation
hitting 2.2 percent. Evans had previously voted against hikes on concerns
that inflation would not hit the Fed’s two percent target.
“When doves are hawkish we have to take a little notice,” said Greg
McKenna, chief market strategist at AxiTrader.
The dollar was up against most other units, sitting at a more than one-
year high against the pound. The euro tumbled on concerns about the crisis in
Turkey.
The South Korean won and Australian dollar were down about one percent
against the dollar while Indonesia’s rupiah and the Mexican peso were also
well off.
The Russian ruble tumbled again and is now five percent down since the US
on Wednesday hit Russia with new sanctions over its alleged involvement in a
nerve agent attack in Britain.
– Key figures at 0720 GMT –
Tokyo – Nikkei 225: DOWN 1.3 percent at 22,298.08 (close)
Hong Kong – Hang Seng: DOWN 0.8 percent at 28,366.62 (close)
Shanghai – Composite: FLAT at 2,795.31 (close)
London – FTSE 100: DOWN 0.6 percent at 7,700.03
Euro/dollar: DOWN at $1.1450 from $1.1529 at 2100 GMT
Pound/dollar: DOWN at $1.2755 from $1.2826
Dollar/yen: DOWN at 110.85 yen from 111.09 yen
Oil – West Texas Intermediate: DOWN 49 cents at $66.32 per barrel
Oil – Brent Crude: DOWN 40 cents at $71.67 per barrel
New York – Dow Jones: DOWN 0.3 percent 25,509.23 (close)
BSS/AFP/HR/14553