Turkey launches probe into ‘fake news’ over lira rumors

Marco Green
August 14, 2018

The dollar rallied, and Treasury yields inched higher.

"Worries of a Turkey shock on neighbouring European Union banks coupled with the contagion effect upon emerging markets had gotten the best of investors across the globe".

Asian markets fell sharply overnight.

Turkey's Central Bank has announced a series of measures to help banks manage their liquidity, after the country's finance chief said the government had readied an "action plan" to ease market concerns that led to a slump in the value of Turkish currency.

Stocks were on a five-week winning streak before last week.

The lira has tumbled on worries over President Tayyip Erdogan's increasing control over the economy and deteriorating relations with the United States.

Turkey's president said that the country's economic dynamics are solid, strong and intact, but at the same time accused the USA of putting a bullet into a strategic partner. Reading too much into copper, which has its own unique set of circumstances, can be risky, but it offers one data point that suggests investors are jittery about the global economy.

Investors also backed away from Argentina's stock market. The Argentinian peso sank to an all-time low amid investor caution and a local corruption scandal involving former government officials.

Energy and industrial companies took some of the worst losses, while technology companies held up better. It had already fallen more than 40% in the past year.

"It's purely technical and Turkey needs a complete rebalancing of its economic business plan, and very sharp rate hikes and a strong commitment that the central bank will be independent", Credit Agricole's senior emerging markets strategist Guillaume Tresca told Reuters.

But analysts argue that the malaise of Turkey - a high-growth economy with widely-acknowledged potential and importance - goes far deeper to policy and imbalances that have been allowed to persist for too long.

In Toronto, the S&P/TSX composite index lost 0.46 per cent, or 75.76 points, to 16,250.75.

Investors are anxious about a confluence of factors including Turkey's reliance on foreign loans, which become more hard to repay when the country's currency is plunging. The U.S. has responded by slapping financial sanctions on two ministers and later doubled steel and aluminum tariffs on Turkey.

European stocks fell in early trade on Monday, with a pan-European index of shares down half a percent and the banking stock index as much as 1.2 percent lower. According to estimates, this amounts to more than US$138 billion.

"The good news is we are not in panic mode", said Win Thin, global head of emerging markets at Brown Brothers Harriman.

The Turkish president is angry that the USA has not taken more action against the Gulenist movement and what he said was a failure "to unequivocally condemn" the 2016 coup attempt. Monsanto said government agencies and hundreds of studies have concluded Roundup is safe.

"So we sold out, for example, with CNH earlier last year and this year we're seeing a similar kind of situation at the moment in several other currencies and we may see the same in Turkey".

Deutsche Bank has highlighted five lenders most at risk due to their "meaningful presence" in the country.

The Trump administration has imposed sanctions against several countries in recent months, including Turkey, Iran and Russian Federation.

Brent crude futures dipped 20 cents, or 0.3 per cent, to settle at $72.61 a barrel, while U.S. West Texas Intermediate (WTI) crude declined 43 cents to settle at $67.20 a barrel, with a 0.7-per-cent loss.

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