World equities slip on Turkey currency woes

World equities slip on Turkey currency woesMore

Analysts at Nomura explained that with the plunge in the Turkish lira, investors' concerns of contagion have spread within the euro area's financial markets.

"We will be taking the necessary steps with our banks and banking watchdog in a speedy manner", he said.

Erdogan reiterated on Monday his view that the currency's crash had no economic basis, saying that USA sanctions imposed on Turkey over the terrorism trial of the pastor, Andrew Brunson, represented a "stab in the back" by a North Atlantic Treaty Organisation ally.

The sanctions caused market turmoil, which the central bank attempted - but failed - to soothe with a series of market-boosting measures.

"On the one hand you are going to be a strategic partner and on the other hand you put a bullet into your strategic partner", Erdogan said.

Turkish President Recep Tayyip Erdogan this morning claimed the country was under economic "siege", accusing the United States of trying to "stab it in the back".

Overnight it fell to a new record low of 7.2362 to the dollar before recovering to around 6.8222 in early Asian trading, similar to its trading price on Friday.

The interior ministry said it had so far identified 346 social media accounts carrying posts about the exchange rate that it said created a negative perception of the economy.

His comments followed US President Donald Trump's announcement that he would be imposing a 20 per cent duty on aluminum and 50 per cent one on steel imported from Turkey.

The Turkish president is angry that the U.S. has not taken more action against the Gulenist movement and what he said was a failure "to unequivocally condemn" the 2016 coup attempt.

The Turkish president repeatedly has voiced displeasure over Washington's tepid response to the attempted mutiny and subsequent refusal to extradite Fethullah Gulen, who lives in self-imposed exile in Pennsylvania.

North Atlantic Treaty Organisation uses the Incirlik Air Base in Turkey to fight against IS and there has been some domestic pressure on Mr Erdogan to close it.

"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", Andrew Kenningham, chief global economist at Capital Economics, told Reuters.

Japan's Nikkei led the early running with a gain of 1.0 percent, while Australia added 0.4 percent. Inflation hit 15.9 percent annually in June.

The lira is now down around 45% against the dollar since the start of the year, making it far harder for Turkish companies to pay back loans they have taken out in the USA currency.

Spain's BBVA, Italy's UniCredit, France's BNP Paribas, Dutch bank ING and Britain's HSBC are the most exposed to Turkey and vulnerable to its free-falling currency. "With God's permission we will overcome this", Erdogan asserted while again rejecting pressure to raise interest rates to make the lira more attractive.

On Monday, during Asian trading hours, the lira fell almost 7 per cent - it has lost over 40 per cent so far this year - fuelling extreme volatility in emerging markets assets already overwhelmed by global trade spats, erratic USA policies and tightening liquidity amid rising interest rates. EMini futures for the S&P 500 edged up 0.2 percent, while 10-year Treasury yields held at 2.88 percent.

What are Turkish officials doing about the lira?

In its first statement since what was dubbed "Black Friday" in Turkey, the central bank said it was ready to take "all necessary measures" to ensure financial stability, promising to provide banks with "all the liquidity" they need.

Lower interest rates tend to stoke growth - as well as inflation.

"Erdogan clearly has a loyal base", he related to The Media Line, "which has stuck with him even during a clampdown on civil liberties". But now, he thinks rates would likely have to rise 35%.

But he has remained defiant while rallying Turks to counter what he describes as a foreign threat, urging citizens to sell dollars and gold to support the local currency and threatening to punish traitors for rumor-mongering.

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