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Trump doubles Turkish tariffs as lira plunges to record lows - business live Trump doubles Turkish tariffs as lira plunges to record lows - business live
(35 minutes later)
Erdogan is practically goading the market into an 8 handle next week https://t.co/2Al06JaWBW
Turkish president Erdogan is making a second speech at the moment.
#Erdogan 2nd speech of the day...will he say anything to steady investor's nerves? This as the Lira continues to plummet & contagion ramps up in Europe pic.twitter.com/waNliQcdsf
He is currently talking about infrastructure spending, including better roads and tunnels.
He says forget the lira, forget currencies and talks about being in love with the Turkish people.
Neil Wilson, chief market analyst at Markets.com, also sees echoes of the Greek troubles:
If you’re looking for a black swan event, this could be it, although we must stress that so the panic is very much confined to Turkey. Nevertheless, ghosts of Greece are still vivid in the memory for European investors and today is the first sign that the problem with Turkey’s larger dollar debts is no longer confined to its borders.
Three summers ago, Greece was forced to impose capital controls to prevent a run on its banks, as its future in the eurozone hung in the balance.
Gavin Friend, senior market strategist at National Australia Bank, believes Turkey could soon be forced into similar measures:
“Though hiking rates would be the market’s preferred option for Turkey to stem this crisis and help deal with inflation this seems unlikely given what we heard from President Erdogan today.
If we assume IMF assistance is out of the question from both sides, that leaves capital controls. That is problematic given Turkey’s need for foreign inflows - but of course they won’t be coming for now and stemming the flow the other way is the issue. This won’t help in building trust between Turkey and international investors.
Paul McNamara, investment director at asset management firm GAM, has written a fine explanation of the causes of Turkey’s economic woes:
“We think that Turkey has a toxic combination of a weak external position (current account deficit), excessive private sector debt and a high level of foreign funding in the banking system. This is coming to a head as a much-needed demand slowdown is causing asset quality problems in the banks. The role of construction in the economy for example is comparable with that in Spain or Ireland ahead of the European bust.
“We think the Turks have exhausted the possibilities of rate hikes, and are backed into a corner by their inadequate level of currency reserves (the IMF thinks that Turkey has the least adequate level of reserves of the major EM economies. The country’s politics are also a problem with the President’s son-in-law as Finance Minister and perception of political interference with the “independent” Central Bank.
“Today’s developments have been very negative: President Erdogan made a belligerent speech with no reference to the need of a change of course. Finance Minister Albayrak made a content-free speech full of consultant platitudes. Finally, US President Trump doubled tariffs on Turkish metal exports – this is likely symbolic, but symbolising a lack of US support for the Ankara regime.
“Our strongly-held negative view on Turkey remains intact and we have not covered any risk.”
Turkey’s deepening currency crisis is sending fear sweeping through the financial markets.
All the main European stock markets are in the red, led by financial shares.
Italy’s benchmark stock index has sunk by 3% today. Germany’s DAX has shed 2%, while Britain’s FTSE 100 is down 60 points, or 0.8%.
Several European banks have significant operations in Turkey, such as Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas.
Unicredit’s shares have fallen by 5.6%, closely followed by BBVA (-5.4%) Deutsche Bank (-5.3%), ING (-5%) and BNP Paribas (-4.2%)
According to the Financial Times, the European Central Bank is worried that Turkish borrowers might not be hedged against the lira’s weakness and begin to default on foreign currency loans.
Those loans make up about 40% of the Turkish banking sector’s assets, and are now a lot more expensive to repay following the lira’s tumble.
#Turkey Lira hits new low as Trump increases tariffs. pic.twitter.com/xVrlQ7a1D5
Turkey’s currency crisis could force president Erdogan to impose capital controls, or seek help from the International Monetary Fund, says Brad Bechtel of investment bank Jefferies:Turkey’s currency crisis could force president Erdogan to impose capital controls, or seek help from the International Monetary Fund, says Brad Bechtel of investment bank Jefferies:
Turkey has a handful of options including seeking an IMF program, capital controls, rate hikes, yield to American demands or do nothing and so far the only option he seems to be leaning towards is do nothing.Turkey has a handful of options including seeking an IMF program, capital controls, rate hikes, yield to American demands or do nothing and so far the only option he seems to be leaning towards is do nothing.
His stubborn stance against the US and twisted view of the IMF combined with a fear of higher interest rates make the situation untenable. The complete loss of credibility in the central bank was the final shoe to drop and spark for the latest rout we’ve seen in the currency. Until decisive action is taken, they will continue to spiral out of control.His stubborn stance against the US and twisted view of the IMF combined with a fear of higher interest rates make the situation untenable. The complete loss of credibility in the central bank was the final shoe to drop and spark for the latest rout we’ve seen in the currency. Until decisive action is taken, they will continue to spiral out of control.
Turkey is now suffering one of the most painful and intense currency crises in many years:Turkey is now suffering one of the most painful and intense currency crises in many years:
Hold on to your hats!Turkish lira 19% down Vs USD on the day at the US open.Hold on to your hats!Turkish lira 19% down Vs USD on the day at the US open.
Lira is down 46% against the dollar in the past 52 weeks. It gets worst faster than I can update the chart. pic.twitter.com/0fcO6luOAiLira is down 46% against the dollar in the past 52 weeks. It gets worst faster than I can update the chart. pic.twitter.com/0fcO6luOAi
The Turkish lira is plunging to new record lows following Donald Trump’s tweet.The Turkish lira is plunging to new record lows following Donald Trump’s tweet.
It’s now down 18% (!!) today, at over 6.5 lira to the dollar, compared with 5.5 lira last night.It’s now down 18% (!!) today, at over 6.5 lira to the dollar, compared with 5.5 lira last night.
That means the currency has lost nearly a third of its value this week. A truly shocking plunge, suggesting Turkey’s economy is getting into serious trouble.That means the currency has lost nearly a third of its value this week. A truly shocking plunge, suggesting Turkey’s economy is getting into serious trouble.
Select Developing Market Currency Performance, YTD: (Turkey now performing worse than Argentina) pic.twitter.com/iimmYQj88dSelect Developing Market Currency Performance, YTD: (Turkey now performing worse than Argentina) pic.twitter.com/iimmYQj88d
NEWSFLASH: Donald Trump has announced he’s doubling the tariffs on Turkish steel and aluminium imports, as the diplomatic row between Turkey and the US deepens.NEWSFLASH: Donald Trump has announced he’s doubling the tariffs on Turkish steel and aluminium imports, as the diplomatic row between Turkey and the US deepens.
Trump announced the move in a tweet, claiming it was in response to the lira’s recent slump.Trump announced the move in a tweet, claiming it was in response to the lira’s recent slump.
I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!
This further intensifies the battle between the two countries over US pastor Andrew Brunson, who is currently imprisoned over terrorism charges.This further intensifies the battle between the two countries over US pastor Andrew Brunson, who is currently imprisoned over terrorism charges.
The moves comes shortly after Turkey’s president claimed there was a campaign to harm Turkey by weakening the lira.The moves comes shortly after Turkey’s president claimed there was a campaign to harm Turkey by weakening the lira.
Trump’s move has sent the lira sliding deeper into trouble. It’s now down almost 14% today at 6.3 lira to the dollar (a month ago it traded at 4.8).Trump’s move has sent the lira sliding deeper into trouble. It’s now down almost 14% today at 6.3 lira to the dollar (a month ago it traded at 4.8).
Turkish Lira extends drop to more than 11% as Trump hits the country with higher metals tariffs https://t.co/4aDHUCbkdr pic.twitter.com/nSONeyEafDTurkish Lira extends drop to more than 11% as Trump hits the country with higher metals tariffs https://t.co/4aDHUCbkdr pic.twitter.com/nSONeyEafD
Turkey’s currency crisis has deepened today, as president Erdogan attempting to calm the situation with a defiant address to the nation.Turkey’s currency crisis has deepened today, as president Erdogan attempting to calm the situation with a defiant address to the nation.
After watching the lira fall to record lows in recent days, Erdogan declared that Turkey is facing an “economic war’, which he vowed not to lose.After watching the lira fall to record lows in recent days, Erdogan declared that Turkey is facing an “economic war’, which he vowed not to lose.
Erdogan also urged Turkish citizens to help, by swapping any foreign currency for lira to help stem its losses.Erdogan also urged Turkish citizens to help, by swapping any foreign currency for lira to help stem its losses.
If there’s anyone who has dollars, gold or euros under their pillow, I am asking them to take them to the bank and exchange them for Turkish lira.If there’s anyone who has dollars, gold or euros under their pillow, I am asking them to take them to the bank and exchange them for Turkish lira.
Erdogan highlights...- Interest rate lobby won't crush Turkey- Let's retake city squares to repel economic attack- We'll smash this plot against country- Let no one doubt our success- Take our money from under mattress and put in bank(Watch here: https://t.co/2N0nQdxdTj pic.twitter.com/b4hXJ3858OErdogan highlights...- Interest rate lobby won't crush Turkey- Let's retake city squares to repel economic attack- We'll smash this plot against country- Let no one doubt our success- Take our money from under mattress and put in bank(Watch here: https://t.co/2N0nQdxdTj pic.twitter.com/b4hXJ3858O
Erdogan is asking citizens again to take their dollars and euros and convert them to liras. A visit to bank branches in Istanbul today indicated that the opposite is happening https://t.co/oudSCQobEZ pic.twitter.com/YVMk5dHEVOErdogan is asking citizens again to take their dollars and euros and convert them to liras. A visit to bank branches in Istanbul today indicated that the opposite is happening https://t.co/oudSCQobEZ pic.twitter.com/YVMk5dHEVO
Turkish assets have been slumping in recent days, for several reasonsTurkish assets have been slumping in recent days, for several reasons
1) A standoff with the U.S. over a detained American pastor that Turkey, a NATO ally, has put on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago. Washington has imposed financial sanctions on two Turkish ministers and warned of additional measures unless the pastor is released1) A standoff with the U.S. over a detained American pastor that Turkey, a NATO ally, has put on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago. Washington has imposed financial sanctions on two Turkish ministers and warned of additional measures unless the pastor is released
2) Investors are worried about the Erdogan’s economic policies since his election win in June. He has long pushed the Turkish central banks to cut interest rates, claiming this would lower inflation (most economists take the opposite view).2) Investors are worried about the Erdogan’s economic policies since his election win in June. He has long pushed the Turkish central banks to cut interest rates, claiming this would lower inflation (most economists take the opposite view).
The lira has slumped by around 10% today, extending yesterday’s deep losses.The lira has slumped by around 10% today, extending yesterday’s deep losses.
Paul Greer, portfolio manager at Fidelity International, argues that Turkey actually needs a massive interest rate hike of perhaps 10 percentage points, to restore market confidence.Paul Greer, portfolio manager at Fidelity International, argues that Turkey actually needs a massive interest rate hike of perhaps 10 percentage points, to restore market confidence.
However, such a move would also probably drag Turkey into recession.However, such a move would also probably drag Turkey into recession.
Greer says:Greer says:
“Turkey’s macro challenges are numerous and well known - an overheating economy, a sizable external financing requirement, an outsized structural current account deficit, persistent double digit inflation, low net FX reserves and a large private sector debt burden. As a result of this, investor confidence in President Erdogan’s regime has been waning for much of the past year but key cabinet changes made after the June 24th elections have been particularly damaging for sentiment.....“Turkey’s macro challenges are numerous and well known - an overheating economy, a sizable external financing requirement, an outsized structural current account deficit, persistent double digit inflation, low net FX reserves and a large private sector debt burden. As a result of this, investor confidence in President Erdogan’s regime has been waning for much of the past year but key cabinet changes made after the June 24th elections have been particularly damaging for sentiment.....
“While Turkey’s fundamental challenges are numerous, there are plenty of straightforward textbook solutions which, if implemented, can halt the downward spiral of investor confidence and asset prices. An aggressive interest rate hike from the Central Bank would be a good start, something of the order of +1,000bp that Argentina delivered back in May would be appropriate at this juncture. This would help slow the economy, probably into a recession, which would help crunch the relentless demand for imports and thereby alleviate some of the current account deficit problem.“While Turkey’s fundamental challenges are numerous, there are plenty of straightforward textbook solutions which, if implemented, can halt the downward spiral of investor confidence and asset prices. An aggressive interest rate hike from the Central Bank would be a good start, something of the order of +1,000bp that Argentina delivered back in May would be appropriate at this juncture. This would help slow the economy, probably into a recession, which would help crunch the relentless demand for imports and thereby alleviate some of the current account deficit problem.
Here’s our economics correspondent Richard Partington on today’s GDP figures:
Warmer weather helped the British economy grow at a faster pace in the three months to the end of June, despite official figures revealing the manufacturing sector slumped into recession for the first time since the Brexit vote.
The Office for National Statistics said GDP increased by 0.4% in the second quarter from a rate of 0.2% in the previous three months, helped by stronger retail sales and good weather enabling the construction industry to make-up lost ground from the heavy snow earlier this year.
The better news for the economy comes after the Bank of England lifted interest rates to 0.75% last week, their highest level since the financial crisis a decade ago.
Philip Hammond, the chancellor, said: “We are working hard to build a stronger, fairer economy – dealing with the deficit, helping people into work, and cutting taxes for individuals and businesses.”
Service industries experienced robust growth of 0.5% in the second quarter, with the retail and wholesale sectors providing the strongest contribution, helped by the warm weather tempting shoppers back to the high street.
However, the latest snapshot from the ONS painted an increasingly lopsided picture for economic growth, with Britain reliant on the services sector amid a downturn for factory output. There were also indications of slowing growth in June, with the ONS revealing May was the strongest month of the second quarter.
More here:
Philip Hammond also dropped a loud hint that the UK government could push for new taxes on online retailers:
Asked about House of Fraser’s lurch into administration today, and the wider problems in the high street, he told Sky News that:
We want to ensure that the high street remains resilient, and that we also make sure that taxation is fair between businesses doing business the traditional way, and those doing business online.
That requires us to renegotiate international tax treaties because many of the big online businesses are international companies.
The EU has been talking about a tax on online platform businesses, based on the value generated.
Chancellor of the exchequer, Philip Hammond, has blamed Britain’s slow growth in recent quarters on Brexit uncertainty.
Speaking in Coventry today, Hammond told reporters that:
“Clearly that uncertainty is having a depressing effect on economic growth.”
Hammond has been pushing for a ‘soft Brexit’, under which Britain maintained close links with the European Union. Back in January, he called for “continued cross-border flow of ideas, goods, services, people and capital”, annoying cabinet colleagues who favour a hard break with the EU.
The TUC make a very important point -- if you adjust for population increases, Britain’s growth has been extremely poor since the financial crisis.
TUC General Secretary Frances O’Grady blames weak investment over the last decade, which has meant earnings growth has been poor too:
“The latest figures cap a dismal decade for the economy. But we should not accept weak growth as the new normal – it’s the result of bad management of the economy. There has been too little investment and a failure to focus on getting wages rising.
“If we want a stronger decade ahead, the UK must catch up with the levels investment we see in other OECD nations. And the government must put action to get wages rising at the heart of its plans.”
However...Rebecca Long Bailey MP, Labour’s Shadow Business Secretary, is concerned that Sports Direct now has control of House of Fraser.
She argues that the UK must reform its business rates system, to help high street chains compete with online retailers.
‘It is unforgivable that the Conservatives have stood by and done nothing while tens of thousands of jobs have been put at risk. Their inaction has prepared the ground for the likes of Mike Ashley, notorious for his company’s poor treatment of workers, to hoover up businesses.
Staff will undoubtedly be concerned about what the sale means for their wages and conditions.
“How many more of our most recognisable high street brands have to go under before the Prime Minister steps up and addresses the broken business rates system which is turning our high streets into ghost towns?
House of Fraser saw its business rates store bill jump by 15% - nearly £4m - to £30.2million this year, says experts Altus. Hardly helped its perilous state. Oh, and rival Amazon’s UK corporation tax bill nearly halved to £4.6m last year.
Financial experts are pleased that House of Fraser has been saved from the abyss by Sports Direct - even though we don’t know Mike Ashley’s long-term plans for the retailer.
Simon Underwood, business recovery partner at accountancy firm, Menzies LLP, says it’s a “welcome outcome”:
“This is possibly the best news from the High Street this year and a positive indicator for other ailing retailers.
“House of Fraser is a strong brand and this £90m bid from Sports Direct owner Mike Ashley means many of its stores will be saved and its operations streamlined.
The fate of the remaining stores is uncertain - some may be sold off separately and others will be closed. The new owners will bring a timely injection of cash, ensuring a future for the various concessions and providing a more stable platform for the business to restructure its operations.
“In a very fast-moving set of circumstances, this is a welcome outcome for both House of Fraser and UK consumers. It shows that there is light at the end of the tunnel and at least for the moment, a mainstay of the British High Street has been saved from the brink.”
Michael Mulligan, insolvency specialist at Shakespeare Martineau, thinks it’s good news for suppliers and staff:
“Now that Sports Direct has acquired the House of Fraser brand – including all of the stock in the business - it will allow continued operation with a likely focus on the flagship stores.
“This will be welcome news not only for suppliers who rely on House of Fraser for their livelihoods, but also for all employees involved.
“This is yet another significant High Street rescue mission and the crisis shows no sign of abating. With interest rates rising and less money in the pocket of the UK consumer, more household names may be at risk.”
Britain’s economy is still “struggling to gain momentum” despite growing faster in April-June, says Mike Jakeman, senior economist at PwC,
“The improvement was partly driven by one-off events, such as higher consumer spending on food and drink around the World Cup, the heatwave and the Royal Wedding. However, there was also some evidence that hot weather and wall-to-wall football deterred shoppers from buying goods other than food or drink. The net effect was that household consumption grew at the same pace as in Q1.
“Instead, the acceleration was driven by investment, which rebounded after a very poor first quarter, but only to the level seen at the end of 2017. Brexit-related uncertainty is still deterring large, export-focused firms from committing to investment plans. Net trade also subtracted from growth for the first time since late 2016, as a result of weaker exports of cars and planes.
Professor Costas Milas of the University of Liverpool says today’s UK GDP report is rather mixed:
Although the 0.4 quarter on quarter per cent growth for 2018Q2 is in line with expectations, the annual growth reading of 1.3 per cent is slightly lower than that the 1.41 per cent estimate (based on market interest rate expectations) by BoE policymakers and even lower than the 1.5 per cent ‘trend growth´ considered by the Bank as our new economic ‘norm’.
So does that mean that the Bank of England was wrong to raise interest rates to 0.75% last week? Not at all, he explains:
What BoE policymakers have decided to do is store up interest rate ‘ammunition’ should Brexit-related developments over the next few months require deep interest rate cuts to revive the economy.
It is vital that financial markets and traders see all this so that selling pressure on the sterling currency recedes.
Sam Tombs of Pantheon Economics makes an important point -- the slump in sterling since the Brexit vote has not healed the UK’s trade woes:
Staggering that net trade has dragged on GDP growth since sterling depreciated. At the same stage after all other 10%+ depreciations since 1945, net trade had boosted growth. Brexit may not have happened yet, but the risks it poses already are draining the life out of the economy pic.twitter.com/tspni6Spm4
Anthony Gillham, head of investment at City firm Quilter Investors, isn’t very impressed with today’s growth report.
He warns that the UK is still ‘playing catch-up’ after slowing last winter.
“While growth has improved slightly, it does so from a low starting point. Over the medium term, UK growth has been thoroughly unspectacular, with the domestic economy expanding at a slower pace than most developed countries.
So with the pound at a 13-month low this morning, Gillham warns that imports will become more expensive....
“There is a real risk of stagflation on the horizon, with the recent interest rate hike failing to address the fall in the pound, and the sentiment of Mark Carney and Liam Fox even talking the value of Sterling to its lowest point against the dollar in a year. The UK finds itself in a difficult situation where the Bank of England is hiking rates to try and keep a lid on import costs that drive up inflation, but it is doing so against the backdrop of weak economic growth.
“The general climate of uncertainty that pervades is discouraging households form making big ticket purchases, while business investment is also stifled as a result of CEOs feeling cautious about starting big projects before they have more certainty about the UK’s future relationship with European trading partners.