Turkey moves promptly but stocks, currencies lick wounds

Action from Turkey’s central bank pushed the lira higher for a second day on Wednesday, helping European stocks and emerging currencies consolidate recent losses though the dollar stuck at 13-month highs kept up the pressure on world markets, Reuters reports from London.

The lira bounced another 5 per cent, sharply extending Tuesday's gains as authorities further tightened the screws on foreigners aiming to short the currency. The lira is now around 6 per dollar, off record lows beyond 7.24 TRY=D3.

However, it started 2018 at 3.75 and the rebound follows a 36 per cent drop over the past month. Fear of full-blown crisis and debt defaults in the country of 80 million people is far from over as the central bank’s failure to tackle galloping inflation and Ankara’s diplomatic tiff with Washington keep investors wary.

“It has calmed down a bit, the reason is that the Turkish lira is appreciating and that is causing people to re-focus on country-specific fundamentals so the contagion effect naturally is less,” said Koon Chow a strategist at fund manager UBP.

He said however there had been little fundamental change to celebrate and added: “It’s only a temporary thing for Turkish markets, I’m not sure (volatility) is over.”

The Turkish worries have in recent days driven a capital exodus from across emerging markets, sending currencies from the Argentine peso to the Indian rupee to record lows, while emerging equities .MSCIEF have tumbled almost 20 per cent from January highs.

There are also concerns about China’s slowing economy — reinforced by this week’s data on investment and industrial output — and the yuan’s weakening to 15-month lows against the dollar is also pressuring other Asian markets.

Indonesia, acting after the rupiah fell to three-year lows, raised interest rates for the fourth time since May

European shares opened flat, though liquidity was severely thinned by a holiday in many countries .

Earlier, Asian shares excluding Japan .MIAPJ0000PUS slid more than 1 per cent to one-year lows while MSCI’s all-country equity benchmark was a quarter per cent lower .MIWD00000PUS. But it stayed off one-month lows reached on Monday.

Chinese shares .HSI .SSEC lost more than 1 per cent, pressured by signs the world's second-largest economy is losing momentum amid a trade conflict with Washington. Japanese shares too dropped one per cent .N225.

US president Donald Trump has slapped hefty tariffs on a swathe of Chinese goods, prompting retaliation from Beijing.

Global trade tensions show little sign of easing, with Beijing now lodging a complaint to the World Trade Organisation to help determine the legality of U.S. tariff and subsidy policies.

Turkey too has raised tariffs on some U.S. products “in response to the U.S. administration’s deliberate attacks on our economy, vice president Fuat Oktay wrote on Twitter on Wednesday.

President Tayyip Erdogan has called a boycott on US electronic goods.

Jameel Ahmad, global head of currency strategy at FXTM brokerage said the escalation of tensions between the United States and Turkey reminded investors “it is not just the United States and China that stand at the heart of the global trade war concerns.”

Wall Street closed higher on Tuesday, continuing to draw support from forecast-beating company earnings but New York stocks appear set for a weaker opening, futures show .ESC1.
SAFETY

The concerns have driven investors to embrace assets such as German and U.S. government bonds, the Japanese yen and Swiss franc, which are considered safer. German and U.S. 10-year yields are down more 10 bps this month DE10YT=RR US10YT=RR.

The other beneficiary has been the dollar. Already resurgent thanks to the high yield it offers, it has surged to 13-month peaks against a basket of currencies .DXY.

“In light of all the turmoil we’ve seen out of Turkey and the subsequent contagion into other emerging markets, the dollar is pretty much establishing itself as the safe-haven currency,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.

“If you are going to park your money somewhere to stay away from the turmoil, the dollar is going to be the currency of choice.”

The strong dollar’s victims are of course emerging currencies — many of them remain under pressure despite the lira’s recent bounce. But the greenback’s rise has also pummelled euro and sterling.

The former has been hit also by jitters around euro zone banks' exposure to Turkey EUR=EBS. The single currency slipped another 0.2 per cent to a new 13-month low versus the dollar and it also extended losses against the Swiss franc EURCHF=

Sterling meanwhile tumbled under $1.27 for the first time since June 2017, having lost ground for 11 days in a row, its longest losing streak since 2008 GBP=D3. The currency is being undermined by confusion around what trade deal it (the British government) will negotiate with the European Union ahead of Britain's planned exit next year from the bloc.

However, gold XAU=, the other traditional safe haven, sank to 18-month lows, also hurt by dollar strength.

“The dollar will continue to be the safe-haven asset of preference. As a consequence, gold prices are really going to struggle,” said Daniel Hynes, an analyst at ANZ Bank.

Turkey crisis weighs on Asian shares

AFP reports from Singapore: Stocks were weaker in most major Asian markets Wednesday, with Turkey's financial crisis showing little sign of abating as Ankara hiked tariffs on several US goods in a tit-for-tat move.

Following a day of gains on Tuesday, investors were again in a bearish mood, driving down markets in Tokyo, Hong Kong and Shanghai, but the Turkish lira was spared the freefall of recent sessions.

The main Japanese market, the Nikkei 225, erased early gains to close 0.68 per cent down on the day, giving back some of the ground made on Tuesday when it jumped by more than two per cent.

The Hang Seng in Hong Kong was off more than 1.5 per cent and the losses were even deeper in Shanghai, which was in the red by more than two per cent as disappointing economic data continued to weigh on the market.

The Turkish lira avoided the kind of dizzying drops seen in recent days but still experienced some frantic trading when Ankara announced a rise in tariffs for certain US imports.

Turkey's vice president said the hikes were ordered "within the framework of reciprocity in retaliation for the conscious attacks on our economy by the US administration", as the war of words between the two NATO allies intensified.

Rodrigo Catril, senior foreign exchange strategist at National Australia Bank, said the Turkey crisis was likely to go on for some time.

"It is hard not to see the lira remaining under pressure until we see a material fiscal restraint to cool down the economy, along with a measurable lift in rates by the central bank and a diplomatic resolution to US tensions," said the analyst.

The Turkish unit had been under pressure for weeks over growing concerns about the health of the economy but the currency slumped on Friday and Monday, when US President Donald Trump announced Washington was ramping up aluminium and steel tariffs.

In late Asian trading, the lira was at 6.2050 against the dollar, having recovered significantly from the record lows of 7.24 seen on Monday.

Traders fretted that Turkey's woes could spark contagion into other emerging currencies and also that banks in advanced nations could suffer due to exposure to the Turkish economy.

"While the lira is stabilising, investors are still concerned that the crisis will spread to other emerging economies and currencies," said Hikaru Sato, senior technical analyst at Daiwa Securities.

"Trading is expected to remain nervous for now."

However, not all was doom and gloom in Asian markets, with Seoul's Kospi and the main Australian market up around 0.5 per cent.

- Key figures around 0900 GMT -

Dollar/Turkish lira: DOWN at 6.21 lira from 6.53 lira early Wednesday

Euro/Turkish lira: DOWN at 7.02 lira from 7.43 lira early Wednesday

Euro/dollar: UP at $1.1339 from $1.1322

Pound/dollar: UP at $1.2720 from $1.2698

Dollar/yen: DOWN at 111.22 from 111.24 yen

Tokyo - Nikkei 225: DOWN 0.7 per cent at 22,204.22 (close)

Hong Kong - Hang Seng: DOWN 1.6 per cent at 27,323.59 (close)

Shanghai - Composite: DOWN 2.1 per cent at 2,723.26 (close)

Oil - Brent Crude: DOWN 8 cents at $72.18 per barrel

Oil - West Texas Intermediate: DOWN 13 cents at $66.64 per barrel

New York - Dow Jones: UP 0.5 per cent at 25,299.92 (close)

London - FTSE 100: DOWN 0.4 per cent at 7,611.64 (close)

Turkey hits back at US with tariff hikes on key products

An AFP report from Istanbul says: Turkey on Wednesday said it was hiking tariffs on imports of several key US products in retaliation for American sanctions against Ankara, as a bitter dispute between the two allies that sent the Turkish lira into freefall showed no sign of ending.

The lira -- which had lost just under a quarter of its value in trade on Friday and Monday -- however continued to claw back some ground on financial markets, rallying over five per cent against the dollar.

The lira's fall had raised fears Turkey was on the verge of a fully-fledged economic crisis, especially in its banking system, that could spill over into Europe and other markets.

Turkish vice president Fuat Oktay said that the tariff hikes were ordered "within the framework of reciprocity in retaliation for the conscious attacks on our economy by the US administration".

President Donald Trump had previously announced that the US was doubling steel and aluminium tariffs on Turkey, as the two NATO allies row over the detention by Turkish authorities of American pastor Andrew Brunson.

The hikes were published in Turkey's Official Gazette in a decree signed by president Recep Tayyip Erdogan, who has repeatedly described the crisis as an "economic war" that Turkey will win.

The tariff increases amount to a doubling of the existing rate, the state-run Anadolu news agency said, in an apparent parallel response to Trump's move.

The decree said the move brought tariffs to 50 per cent on imports of US rice, 140 per cent on hard alcoholic drinks like spirits, 60 per cent in leaf tobacco and 60 per cent on cosmetics.

The tariffs on auto imports are now up to 120 per cent, depending on the type of vehicle.

- Rate hike urged -

Erdogan on Tuesday said Turkey would boycott US electronic goods like iPhones, even though he has himself been photographed repeatedly using the product himself.

He also made his now famous speech on the night of the July 2016 failed coup calling citizens out into the street through FaceTime, an iPhone app.

Moves by the central bank to ensure Turkish banks have liquidity and a planned conference call by Turkish Finance Minister Berat Albayrak, who is Erdogan's son-in-law on Thursday have gone some way to giving reassurance to investors.

The lira was trading on Wednesday at 6.02 to the dollar, a gain in value on the day of 5.5 per cent.

But many analysts say the only way for the authorities to show they are really serious about tackling Turkey's economic problems -- which include inflation approaching some 16 per cent -- would be a sharp rate hike.

"Significantly more than just official promises of action are needed to exit the current crisis," said Andy Birch, principal economist at IHS Markit, calling for "a sharp central bank rate rise".

- Court rejects Brunson appeal -

Turkey has meanwhile resisted pressure to release Brunson -- who has been held for two years and is currently under house arrest -- with officials warning it could face further sanctions.

A court in the western Turkish city of Izmir rejected a new appeal to free Brunson on Wednesday, the state television TRT reported.

Erdogan has warned Turkey could seek alternative partners pointing to Ankara's strong ties with Russia, Iran and China.

The president is due to meet with the emir of gas-rich Qatar, one of Turkey's very closest allies on Wednesday.

Turkish officials have also been keen to emphasise that Ankara wants to retain strong ties with Europe, which has also expressed deep unease with Trump's trade policies.

A Turkish court Tuesday released two Greek soldiers detained since March on espionage charges for illegally crossing the border in a case that has stoked tensions with Brussels.

Qatar's emir travels to crisis-hit Turkey

According to another AFP report filed from Doha, The emir of wealthy Qatar flew to Turkey Wednesday to meet close ally president Recep Tayyip Erdogan in an apparent show of support as Ankara grapples with a currency crisis.

State media in Doha said Sheikh Tamim bin Hamad Al-Thani was travelling to Turkey for a "working visit".

The emir "will discuss with the Turkish president bilateral relations and means of strengthening the existing strategic cooperation between the two countries in various fields," said a Qatar News Agency statement.

Turkey has been rocked in recent days by a sharp decline in the value of its lira after US president Donald Trump tweeted last Friday that Washington was doubling aluminium and steel tariffs for Ankara.

Washington's move came during an ongoing dispute over Turkey's holding of an American pastor for two years.

In response, Erdogan has called for a boycott of US electrical goods.

The turmoil has raised fears of a looming economic crisis in Turkey and prompted alarm that foreign investors in the country, including Qatar, could be hit in the fallout.

Turkey and Qatar have become close economic and political partners in recent times.

Doha has $20 billion worth of investments in Turkey, official figures showed last month, and Ankara is now one of the top exporters to the emirate.

In recent days, Qatari supporters of Turkey have begun a public campaign in Doha to change their riyals into lira in an attempt to shore up the plunging Turkish currency.

It is believed many Qatari investors could be at risk from a Turkish economic crisis.

Underscoring the ties between the countries, Sheikh Tamim was the first foreign leader to phone president Erdogan during the aborted coup in Turkey in 2016.

And Ankara has been conspicuous in its support of Doha as Qatar battles with continued Saudi-led isolation from Arab neighbours.

Turkey also maintains a small military base in Qatar.

Indonesia central bank hikes rates

AFP also reports from Jakarta: Indonesia's central bank hiked interest rates Wednesday in a bid to shield the slumping rupiah from a selloff in emerging market currencies as Turkey's financial crisis roils global markets.

Bank Indonesia raised its benchmark rate to 5.50 per cent from 5.25 per cent, its fourth hike since May, after the rupiah this week dropped to its lowest level against the dollar since 2015.

Investors have been dumping emerging market currencies, including the rupiah, as rising US interest rates prompt them to flock to dollar-denominated assets in search of better returns.

But a plunge in the Turkish lira has sent shivers through global markets and heaped more pain on emerging units.

Concerns about the health of Turkey's economy were already pressuring the lira, which slumped on Friday and Monday as US president Donald Trump announced Washington was ramping up aluminium and steel tariffs.

Indonesia's central bank said its latest rate hike was partly driven by the Turkey crisis.

"We are closely watching what's happening in Turkey," bank governor Perry Warjiyo said after the rate announcement.

"Global economic uncertainty has been rising due to the ...turmoil in Turkey."

The rupiah slumped to its lowest point since 2015 on Monday after Indonesia reported its biggest current account deficit in nearly four years. The current account is a broad measure of a country's trade with the rest of the world.

The rupiah was trading at 14,576 against the dollar Wednesday, down more than seven per cent since the start of the year.

Tokyo stocks down as Turkey jitters continue

Tokyo stocks erased early gains to finish lower in Wednesday trading, as Turkey's currency crisis fuelled concerns of contagion to other emerging economies and pressured Asian shares.

The benchmark Nikkei 225 index, which jumped more than two per cent on Tuesday, lost 0.68 per cent or 151.86 points to 22,204.22.

The broader Topix index was down 0.76 per cent or 12.92 points at 1,698.03.