Turkey tries to contain crisis but currency keeps falling

Turkey tries to contain crisis but currency keeps falling

Asia share markets skidded and the euro hit one-year lows on Monday as a renewed rout in the Turkish lira drove demand for safe harbors, including the us dollar, Swiss franc and yen.

The countries are embroiled in a diplomatic row sparked by the case of USA evangelic pastor Andrew Brunson, which Turkey wants to try on terrorism charges believing he was behind the attempted coup on President Recep Tayyip Erdogan two years ago. It fell as much as 12 per cent at one stage on Monday, then recovered to a loss of 8.5 per cent.

Experts have blamed the drop in the lira on fears that Turkey may be falling into an economic crisis.

Dollar/yen was undermined in part as Japanese household savers have typically held large amounts of high-yielding emerging market currency assets and pressure for redemptions and repatriation may now rise and be indiscriminate across the EM complex.

"This is a typical "flight to quality" move from foreign investors out of emerging markets to safer, developed countries", Agathe Demarais, lead Turkey analyst at the Economist Intelligence Unit, told AFP.

Japan's Nikkei lost 0.95 percent and MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.3 percent as bourses across the region turned red.

Turkey's currency hit a record low of 7.23 per dollar late on Sunday after Erdogan, in a series of speeches over the week, showed no sign of backing down in the standoff against the United States. "With God's permission we will overcome this". As interest rates rise in the US, investors pull their money out of countries that had enjoyed strong economic growth but are perceived as somewhat riskier.

The lira's slide continued Monday, with the currency dropping as much as 10% against the U.S. dollar in early-morning trading before stabilizing.

Hong Kong's Hang Seng index was down nearly 1.6% in afternoon trade, while the Shanghai Composite fell 1.7%. It hit a new low on Monday of 7.24 per dollar. "Bond yields might start to widen and most Aussie banks borrow a fair bit from offshore".

In commodity markets, gold had found little in the way of safety flows and was last stuck at $1,211.80 an ounce. European and US stock futures were down about half a percent first thing Monday.

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Oil prices fell on Monday after data suggested inventories at the US crude delivery hub rose in the latest week, compounding worries that troubled emerging markets and trade tensions will dent the outlook for fuel demand.

On the stock market, the Top-40 index was up 0.48 percent in early trade. The Canadian Syncrude processing facility has begun ramping up light oil production and was expected to return to full production in September.

In an interview with Hurriyet newspaper published online, Albayrak described the lira's weakness as "an attack", echoing President Tayyip Erdogan - who is his father-in-law - but he said Turkey's action plan was ready.

Global markets are on edge once again, this time thanks to the Turkish lira.

It had already plummeted more than 20% last week as a political clash with the United States intensified and investors fretted about the Turkish government's lack of action to tackle the problems plaguing its economy.

Kenningham noted Turkey's annual gross domestic product of around $900 billion was just 1 percent of the global economy and slightly smaller than the Netherlands.

Contagion risks seem to be rising.

Another factor to bear in mind, though, is that - as with the pound - some of these currency falls may appear more intense because of the U.S. dollar's current strength.

In a monthly report, OPEC said the world will need 32.05 million bpd of crude from its 15 members in 2019, down 130,000 bpd from last month's forecast.

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