Global Markets: Shares regain footing as lira roars out of rout

Daniel Fowler
August 14, 2018

Turkey's stock exchange closed down today, with the benchmark BIST 100 index losing 2.4 percent, taking financial stocks for a harsh ride as the lira crashed before a slight recovery as Erdogan's attempts to stabilize the economy continue to fail.

His assurance came after Turkey's president blamed the lira's plunge on a plot against the country. There is no economic reason.

Turkey's stock market has also fallen 17 percent, while government borrowing costs have risen to 18 percent a year.

The U.S. government believes that Brunson - a Turkish-American NASA scientist accused of links to U.S-based Muslim cleric whom Turkey blames for a failed coup in 2016 - and three Turkish employees of U.S. diplomatic missions accused of terror-related charges are being held unjustly.

"So far the impact of the lira crash has been limited in Europe and the rest of the world", said Agathe Demarais, Turkey analyst at The Economist Intelligence Unit, in comments emailed to AFP.

Separately, the Istanbul and Ankara prosecutor's offices launched investigations into individuals suspected of being involved in actions that threaten Turkey's economic security, broadcaster CNN Turk and state news agency Anadolu reported.

Earlier Sunday, Turkish President Recep Tayyip Erdogan stood by his opposition to high interest rates despite the sharp falls in the currency, saying the lira's weakness did not reflect the country's economic realities.

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Relations between North Atlantic Treaty Organisation allies Turkey and the United States are at a low point, hurt by a series of issues from diverging interests in Syria, Ankara's plan to buy Russian defence systems and the detention of an American pastor, Andrew Brunson. Even the Russian ruble's been hit with a 15% dip.

Last Friday, President Donald Trump doubled tariffs on aluminum and steel imports from Turkey.

What are Turkish officials doing about the lira?

"All our precautions and actions plans are ready", he added, without providing details.

Investors have pulled back money from emerging markets in recent months as the US Federal Reserve has steadily raised interest rates and is cutting back on easy money policies in response to a robust American economy. Also supporting the Dollar was recently released economic data which showed core CPI making its biggest advance in a decade, rising 2.4% from a year ago. Mr Erdogan favours lowering borrowing costs to fuel credit growth and economic expansion. This has raised concerns over the central bank's independence given the president's repeated statements against raising interest rates.

Why is there so much fear of contagion?

"Our relations with Turkey are not good at this time!" Investors should expect a similar reaction when European markets open today, with banks to lead the declines.

Brunson lived a quiet life after moving to the ancient port city on Turkey's Aegean coast 23 years ago with his wife, Norine, and three children, to work as missionaries with the Associated Reform Presbyterian Church.

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