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Turkish lira hammered again as crisis spills into Asian markets
HONG KONG, Aug 13, 2018 (BSS/AFP) – Asian markets tumbled and the Turkish
lira dived almost eight percent Monday on fears that the economic crisis
gripping Turkey could spill over into the global economy.
With investors already on edge over the China-US trade war, the lira’s
collapse sparked a sell-off in Europe and New York at the end of last week,
with safe haven assets including the Japanese yen and Swiss franc rallying.
The lira dived to a record low of 7.2362 to the dollar at one point
overnight before recovering slightly after the country’s finance minister
said Ankara was planning to roll out an “action plan” on Monday in response
to the crisis.
“Our institutions will take necessary action from Monday in order to
relieve the markets,” Berat Albayrak said, adding that the plan would centre
on “the state of our banks and the small and medium size enterprises” most
affected by the lira’s plunge.
The lira has been hammered this year, having started January at around
3.70 to the dollar, while it was also sharply down against the euro.
However, the European unit was taking a hit against the greenback on
worries about the possible impact on some European banks, including Spain’s
BBVA, Italy’s UniCredit and France’s BNP Paribas.
Despite the tumult, President Tayyip Erdogan remains in combative mood,
calling the rout a “political, underhand plot” against Turkey.
The crisis has been sparked by a series of issues including a faltering
economy — the central bank has defied market calls for rate hikes — and
tensions with the United States, which has hit Turkey with sanctions over its
detention of an American pastor.
Ankara has also hit out at Washington’s cooperation with Syrian Kurdish
militia in the fight against Islamic State.
– Vulnerabilities –
“The decline in the lira is multifaceted, caused not only by a weak
external position in terms of current account deficit and inadequate currency
reserves, but also the challenging political environment which exacerbates
the vulnerabilities in the lira,” said Kerry Craig, global market strategist
at JP Morgan Asset Management.
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“A mid-meeting rate hike and tightening of monetary policy may help to
avert the lira’s decline, to some extent.”
As well as the lira, emerging market and other high-yielding currencies
tumbled across the board.
The Russian ruble, already under pressure after the US hit Moscow with
sanctions last week, lost two percent, while the South African rand was
battered seven percent.
South Korea’s won and the Australian dollar retreated 0.5 percent and the
Indonesian rupiah lost 0.9 percent.
The yen, a go-to unit in times of turmoil, rose against the dollar, while
the Swiss franc was also higher.
“The dominating theme of this week is likely to be the Turkish situation,”
Okasan Online Securities said in a note to clients.
“The ‘Turkey shock’ from last weekend, triggered by sharp plunges of the
lira, has fuelled fears that it may impact financial institutions in Europe,”
it said.
On equity markets Hong Kong shed 1.8 percent and Shanghai was 1.4 percent
lower, while Tokyo dropped 1.6 percent by the break with exporters hurt by
the stronger yen.
The sharp losses come despite the fact Turkey accounts for just one
percent of the world economy, meaning there is little risk to the world
economy, or even the eurozone.
– Key figures at 0230 GMT –
Dollar/Turkish lira: UP at 6.99 lira from 6.43 lira late Friday
Euro/Turkish lira: UP at 7.93 lira from 7.34 lira
Tokyo – Nikkei 225: DOWN 1.6 percent at 21,942.23 (break)
Hong Kong – Hang Seng: DOWN 1.8 percent at 27,855.25
Shanghai – Composite: DOWN 1.4 percent at 2,755.77
Euro/dollar: DOWN at $1.1382 from $1.1421
Pound/dollar: DOWN at $1.2754 from $1.2789
Dollar/yen: DOWN at 110.44 yen from 110.58 yen
Oil – West Texas Intermediate: UP eight cents at $67.71
Oil – Brent Crude: DOWN five cents at $72.76
New York – Dow Jones: DOWN 0.8 percent at 25,313.14
London – FTSE 100: DOWN 1.0 percent at 7,667.01 (close)
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