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Stock markets drop after run higher
LONDON, Aug 30, 2018 (AFP) – Stock markets dropped Thursday on profit-
taking after a recent run higher on optimism on trade deals, while
Argentina’s peso and the Turkish lira tumbled.
The peso slumped to a new record low, prompting Argentina’s central bank
to raise its benchmark interest rate from 45 to 60 percent in a bid to arrest
a slide in its value.
The drop followed the IMF’s agreement to a request from the Argentinean
government on Wednesday to speed up payments under its $50 billion loan.
The peso fell nearly 15 percent against the US dollar, taking its losses
since the beginning of the year to over 45 percent.
Meanwhile, the Turkish lira suffered fresh losses, dropping almost 5
percent against the dollar, as a deputy central bank governor resigned.
The lira has lost nearly 45 percent of its value against the dollar since
the beginning of the year, which led economists to warn of a full-blown
recession.
“The latest Turkish activity data suggest that the plunge in the lira
since May, and the associated sharp tightening of financial conditions, has
tipped the economy into recession. Things are only likely to get worse,”
Capital Economics said in a note.
The currency had already been hit by concerns over monetary policy under
President Recep Tayyip Erdogan but tanked this month after a public spat with
the United States.
Analysts say measures taken by the authorities are not enough and call for
a sharp hike in interest rates — strongly opposed by Erdogan’s government
which sees economic growth as its top priority.
The resignation of the deputy governor will give Erdogan the chance to
appoint another official who sits on the central bank’s committee which
decides on interest rates.
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Other emerging market currencies also slid as investors shied away from
risk.
On Wall Street, stocks were lower as investors took profits from a record-
setting rally on hopes that Canada and the United States were close to a deal
on reviving the North American Free Trade Agreement.
While hopes were still high for a deal, investors began to worry about
other issues, and European stocks suffered.
London closed down 0.6 percent, followed by a drops of 0.5 percent in
Frankfurt and 0.4 percent in Paris.
“Stocks are firmly in the red as rising Italian government bond yields, a
slide in emerging market currencies, and continued uncertainty about US-China
trade tensions have weighed on markets,” said market analyst David Madden at
CMC Markets UK.
“Those topics have been bubbling away in the background, and now they are
at the forefront of dealers’ minds,” he added.
Italy sold 10-year bonds at a 3.25 percent rate of return for investors,
crossing the 3.0 percent threshold for the first time since May 2014.
The yield on Italian debt has shot over the 3.0 percent level several
times in the secondary markets several times in recent months as an anti-
establishment coalition came to power and has signalled changes to economic
and budget policy.
Higher borrowing costs could put additional strain on Italy, which has the
largest debt in the eurozone and where growth was tepid.
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