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Analysis

World markets fear Turkey contagion

By AFP 10/8/2018
People look at foreign exchange rates in Ankara, Turkey, on August 10, 2018. Turkish President Recep Tayyip Erdogan called on Turks to support their struggling currency, the lira, by exchanging any foreign money, saying Turkey faces an economic war. Photo: Adem Altan | AFP
People look at foreign exchange rates in Ankara, Turkey, on August 10, 2018. Turkish President Recep Tayyip Erdogan called on Turks to support their struggling currency, the lira, by exchanging any foreign money, saying Turkey faces an economic war. Photo: Adem Altan | AFP
A plunge of the Turkish lira to record lows sent shivers through global markets Friday as investors worried about contagion, especially for the European banking sector.

"For some time now investors have been looking at the unfolding currency crisis in Turkey as a local difficulty," noted CMC Markets UK analyst Michael Hewson.

"However, the accelerating speed of the declines appears to be raising concerns about European banks' exposure to the Turkish banking system."

The lira was buffeted by a diplomatic row between Ankara and Washington, with Turkish President Tayyip Erdogan's attempts to talk up the currency having exactly the opposite effect.

Banking crisis?


"The plunge in the lira which began in May now looks certain to push the Turkish economy into recession and it may well trigger a banking crisis," said Andrew Kenningham, chief global economist at Capital Economics.

European banking stocks plunged, the euro weakened while demand for safe haven assets gold and the Swiss franc picked up as analysts realised that the lira's plunge was not just a local Turkish problem.

But neither should global investors over-react, suggested Kenningham, noting that Turkey accounts for just one percent of the world economy, slightly less than the Netherlands, making it not much of a risk to the world economy, or even the eurozone.

Still, analysts said the lira's plunge which took it down nearly 20 percent against the dollar on the day in the European afternoon, was dramatic, with analysts struggling to recall when they last saw anything like it.

It's probably not over


"The last time I can remember a currency exploding into a similar acceleration of weakness to what we have seen in the past 24 hours is the Russian Ruble crisis that transpired late in 2014," said Jameel Ahmad, head of currency strategy at FXTM.

And the fall may not be over.

"It is astonishing that no matter how punished the Lira looks, traders are showing absolutely no indication that they are finished with pricing in 'bad news' into the market," Ahmad said.

"Where we go from here remains highly uncertain," agreed XTB analyst David Cheetham.

The European single currency meanwhile tumbled to its lowest level in a year on concerns about eurozone exposure to the crisis in Turkey.

Concerns were amplified 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 eurozone 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.

More evidence that emerging currencies were having a bad day came from Russia, where the ruble dived again on Friday and is now down five percent since the US on Wednesday hit Russia with new sanctions over its alleged involvement in a nerve agent attack in Britain.

Bank stocks plunge


Stock markets across the world retreated as investors watched Turkey with growing unease.

Key European equity markets were down by up to two percent at the closing bell, with shares in banking giants BNP Paribas and Societe Generale more than three percent lower in Paris and Commerzbank and Deutsche Bank losing around four percent in Frankfurt.

Meanwhile on Wall Street the Dow index stood around 0.7 percent lower approaching midday in New York with analysts reporting that US markets, too, were focusing on Turkish developments with apprehension.

"The thrust of the market's concerns about the lira is tied to worries about a possible contagion effect -- an emerging market currency crisis if you will," Briefing.com analyst Patrick O'Hare said.

Comments

 
Ahmed | 11/8/2018
Ya Allah ya Rahman, a7fad lana Erdogan!!
Xale Rashid | 11/8/2018
Erdogan has all of Westeren Europe by the balls! not only does he blackmail them with the refugee situation but has borrowed som much money from European banks and creditors that he has tied their fate to Turkey's economy. Russia and the Untied States on the other hand don't have that problem and can hurt Turkey any time they want. Best part is the dumb Europeans were about to do the same mistake with Iran!
Enkiu | 11/8/2018
I know I should not enjoy other people's misfortune, but I cannot help but giggle as I watch events around the world as one year anniversary of the referendum nears. What a difference one year makes! The world sees in plain view more of madness from one flea bitten Turk and would be sultan. Turkey is in trouble... perhaps Erdogans's God likes Kurds more than him! Iran is in more and more trouble. Iraq has shown what a mistake it was to support it over Kurdistan. All the enemies grow weaker. I will post this again then: https://www.youtube.com/watch?v=PWIjFeiPSNs&list=LLmzdsctdqCKBTpMRzXo8tPQ&t=0s&index=37
Mark 1 | 11/8/2018
Why fear??????? it will be the biggest celebration since ww2 same like the defeat of nazi Germany in world war 2, all those deluded satanic states and actors that protégées turkey the little son of a bitch version of the fourth nazi Reich, will get a heavy blow to their dirty economy. The day turkey is finished and draws nazi Germany with it will be the day I will reluctantly accept losing every penny I have. But the Kurds will prevail over the evilness hopefully they pay back and finish them forever.
Mark 1 | 11/8/2018
If there is a god there will be severe punishment for the dirty Turks and all their nazi german supporters. Turkeys economy is a tiny fly compared to China and USA economy but nazi Eu economy will pay for that shithole like it’s paying through the refugees crises already 2 digit billion dollars every year beside the fact that nazis are weakening trust into Europe severely and the lost investments as well as chances.

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