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| Trump doubles Turkish tariffs as lira plunges to record lows - as it happened | Trump doubles Turkish tariffs as lira plunges to record lows - as it happened |
| (4 months later) | |
| The Turkish lira was already under pressure this week on concerns about the country’s economy, but Donald Trump’s tweet threatening to double tariffs on steel and aluminium sent the currency tumbling to new lows. The fallout saw European markets fall sharply, with investors worried about contagion effects, particularly on banks exposed to the Turkish currency. The escalation of yet another trade dispute hit not only European and emerging markets but Wall Street as well. The final scores in Europe showed: | The Turkish lira was already under pressure this week on concerns about the country’s economy, but Donald Trump’s tweet threatening to double tariffs on steel and aluminium sent the currency tumbling to new lows. The fallout saw European markets fall sharply, with investors worried about contagion effects, particularly on banks exposed to the Turkish currency. The escalation of yet another trade dispute hit not only European and emerging markets but Wall Street as well. The final scores in Europe showed: |
| The FTSE 100 fell 74.76 points or 0.97% to 7667.01 | The FTSE 100 fell 74.76 points or 0.97% to 7667.01 |
| Germany’s Dax dropped 1.99% to 12,424.35 | Germany’s Dax dropped 1.99% to 12,424.35 |
| France’s Cac closed 1.59% lower at 5414.68 | France’s Cac closed 1.59% lower at 5414.68 |
| Italy’s FTSE MIB finished down 2.51% at 21,090.78 | Italy’s FTSE MIB finished down 2.51% at 21,090.78 |
| Spain’s Ibex ended 1.56% lower at 9602.1 | Spain’s Ibex ended 1.56% lower at 9602.1 |
| In Greece, the Athens market lost 1.45% to 743.73 | In Greece, the Athens market lost 1.45% to 743.73 |
| On Wall Street, the Dow Jones Industrial Average is currently down 191 points or 0.75%. | On Wall Street, the Dow Jones Industrial Average is currently down 191 points or 0.75%. |
| On the currency markets the Turkish lira, down 20% at one point, is 15.6% lower. | On the currency markets the Turkish lira, down 20% at one point, is 15.6% lower. |
| The pound is also under pressure, as continuing Brexit concerns outweighed improving growth figures (although manufacturing moved into recession). Against the dollar sterling is down 0.6% at $1.2742 but it improved 0.5% to €1.1183 against a euro which has been weakened by worries about European banks’ exposure to Turkey. | The pound is also under pressure, as continuing Brexit concerns outweighed improving growth figures (although manufacturing moved into recession). Against the dollar sterling is down 0.6% at $1.2742 but it improved 0.5% to €1.1183 against a euro which has been weakened by worries about European banks’ exposure to Turkey. |
| On that note it’s time to close for the day. Thanks for all your comments, and we’ll be back next week. | On that note it’s time to close for the day. Thanks for all your comments, and we’ll be back next week. |
| Here’s our story on Turkey’s problems: | Here’s our story on Turkey’s problems: |
| Turkey’s unfolding economic crisis has deepened further after Donald Trump announced he is doubling US import tariffs on Turkish steel and aluminium, stoking the country’s currency freefall and rattling financial markets. | Turkey’s unfolding economic crisis has deepened further after Donald Trump announced he is doubling US import tariffs on Turkish steel and aluminium, stoking the country’s currency freefall and rattling financial markets. |
| The Turkish lira plunged by more than 20% against the dollar after the president announced the move, amid a widening dispute between Washington and Ankara over the imprisonment of the US pastor Andrew Brunson. | The Turkish lira plunged by more than 20% against the dollar after the president announced the move, amid a widening dispute between Washington and Ankara over the imprisonment of the US pastor Andrew Brunson. |
| Pressure has been applied on the country in recent days to stage an emergency interest rate rise to avert further economic damage. | Pressure has been applied on the country in recent days to stage an emergency interest rate rise to avert further economic damage. |
| Revealing an increase in US taxes on Turkish steel imports to 50% and on aluminium to 20%, the president tweeted: “Our relations with Turkey are not good at this time!” | Revealing an increase in US taxes on Turkish steel imports to 50% and on aluminium to 20%, the president tweeted: “Our relations with Turkey are not good at this time!” |
| The full report is here: | The full report is here: |
| Turkey's economic crisis deepens as Trump doubles tariffs | |
| Recap of the day so far:#Turkey's #Lira (#TRY) falls as much as 20%Turkey's 2-year #yield skyrockets to > 24%Eurozone bank stocks down more than 3%#EURUSD < 1.14 pic.twitter.com/4l35aoZTGM | Recap of the day so far:#Turkey's #Lira (#TRY) falls as much as 20%Turkey's 2-year #yield skyrockets to > 24%Eurozone bank stocks down more than 3%#EURUSD < 1.14 pic.twitter.com/4l35aoZTGM |
| The fallout from Turkey is unlikely to be felt too strongly elsewhere despite fears of contagion, says John Higgins at Capital Economics: | The fallout from Turkey is unlikely to be felt too strongly elsewhere despite fears of contagion, says John Higgins at Capital Economics: |
| Our view is that Turkey’s problems will continue to mount in the face of excessively loose monetary and fiscal policy...Despite a vague acknowledgement by the country’s finance minister of the need for somewhat tighter policy, Friday’s plan was devoid of detail and followed an anti-market diatribe from President Erdogan. | Our view is that Turkey’s problems will continue to mount in the face of excessively loose monetary and fiscal policy...Despite a vague acknowledgement by the country’s finance minister of the need for somewhat tighter policy, Friday’s plan was devoid of detail and followed an anti-market diatribe from President Erdogan. |
| We don’t think that Turkey’s growing difficulties will cause a lot of trouble elsewhere, though. This includes in other emerging markets [EMs], which tend to have limited trade and financial ties with, as well as smaller current account deficits than, Turkey. Meanwhile, the fragilities in Turkey’s banking sector that are now grabbing attention are more acute than in most other EMs. | We don’t think that Turkey’s growing difficulties will cause a lot of trouble elsewhere, though. This includes in other emerging markets [EMs], which tend to have limited trade and financial ties with, as well as smaller current account deficits than, Turkey. Meanwhile, the fragilities in Turkey’s banking sector that are now grabbing attention are more acute than in most other EMs. |
| Having said all of this, Turkey’s woes are another headwind facing EMs that has arisen in the past few months: China’s economy is now slowing, EMs are now tightening monetary policy and the trade war is escalating. So the situation in Turkey could worsen sentiment towards EMs and also strengthens our view that EM growth will weaken. | Having said all of this, Turkey’s woes are another headwind facing EMs that has arisen in the past few months: China’s economy is now slowing, EMs are now tightening monetary policy and the trade war is escalating. So the situation in Turkey could worsen sentiment towards EMs and also strengthens our view that EM growth will weaken. |
| Of course, investors are also worried about the implications of Turkey’s problems for the euro-zone’s banking system and economy. But while these concerns add to the long list of recent headwinds for the euro, neither the overall exposure of banks in the euro-zone to Turkey nor the direct links between the region’s economy and the country is large. | Of course, investors are also worried about the implications of Turkey’s problems for the euro-zone’s banking system and economy. But while these concerns add to the long list of recent headwinds for the euro, neither the overall exposure of banks in the euro-zone to Turkey nor the direct links between the region’s economy and the country is large. |
| This is also the case for the wider world. The exposure of US and UK banks to Turkey is negligible. And Turkey’s economy accounts for just one percent of the global economy at market exchange rates. | This is also the case for the wider world. The exposure of US and UK banks to Turkey is negligible. And Turkey’s economy accounts for just one percent of the global economy at market exchange rates. |
| Heading into the market close in Europe, and investors have taken fright at the Turkish problems, with worries about contagion uppermost in their minds. David Madden, market analyst at CMC Markets UK, says: | Heading into the market close in Europe, and investors have taken fright at the Turkish problems, with worries about contagion uppermost in their minds. David Madden, market analyst at CMC Markets UK, says: |
| European stock markets have been rocked by the plunge in the Turkish lira. The European Central Bank (ECB) warned that a number of eurozone banks might be exposed to the sharp decline in the Turkish lira. | European stock markets have been rocked by the plunge in the Turkish lira. The European Central Bank (ECB) warned that a number of eurozone banks might be exposed to the sharp decline in the Turkish lira. |
| A number of Spanish, French and Italian banks are connected to Turkey in the form of foreign denominated loans, and if the Turkish borrowers haven’t hedged their exposure it might spark defaults. Should European banks incur write-downs on account of the Turkish currency crisis, investment sentiment is likely to be weak. Many financial institutions in Europe have their own non-performing loans to contend with, and they could be facing a similar situation in Turkey. | A number of Spanish, French and Italian banks are connected to Turkey in the form of foreign denominated loans, and if the Turkish borrowers haven’t hedged their exposure it might spark defaults. Should European banks incur write-downs on account of the Turkish currency crisis, investment sentiment is likely to be weak. Many financial institutions in Europe have their own non-performing loans to contend with, and they could be facing a similar situation in Turkey. |
| Reuters’ Jamie McGeever has put today’s fall in the Turkish lira into context: | Reuters’ Jamie McGeever has put today’s fall in the Turkish lira into context: |
| Turkish lira having one of the biggest one-day falls of any free-floating currency in over 20 years. Now down 14%, but was off as much as 20% earlier today. For comparison:Indonesian rupiah -15% on 6 May, 1998S African rand -15% on 15 Oct, 2008UK pound -8% on 24 June, 2016 | Turkish lira having one of the biggest one-day falls of any free-floating currency in over 20 years. Now down 14%, but was off as much as 20% earlier today. For comparison:Indonesian rupiah -15% on 6 May, 1998S African rand -15% on 15 Oct, 2008UK pound -8% on 24 June, 2016 |
| Here’s Bloomberg’s energy editor on Turkish steel exports, which will now be hit by the new Trump tariffs: | Here’s Bloomberg’s energy editor on Turkish steel exports, which will now be hit by the new Trump tariffs: |
| #Turkey's #steel exports to the US fell by more than half in the first five months of 2018. They'd hoped to make back that ground. That now looks unlikely https://t.co/gy5R5wJTOL via @tbiesheuvel #Tradewars pic.twitter.com/BfPfhjVEET | #Turkey's #steel exports to the US fell by more than half in the first five months of 2018. They'd hoped to make back that ground. That now looks unlikely https://t.co/gy5R5wJTOL via @tbiesheuvel #Tradewars pic.twitter.com/BfPfhjVEET |
| Erdogan is now repeating his previous pleas to buy lira: | Erdogan is now repeating his previous pleas to buy lira: |
| Erdogan again calling on Turkish citizen to buy Lira and sell foreign currencies... | Erdogan again calling on Turkish citizen to buy Lira and sell foreign currencies... |
| ERDOGAN: TURKEY ECONOMY TO GROW AT RECORD LEVEL IN 2018(just not in US dollar terms) | ERDOGAN: TURKEY ECONOMY TO GROW AT RECORD LEVEL IN 2018(just not in US dollar terms) |
| The situation for Turkey looks bleak and it is entirely of its own making, says Jan Dehn, head of research at investment manager Ashmore Group: | The situation for Turkey looks bleak and it is entirely of its own making, says Jan Dehn, head of research at investment manager Ashmore Group: |
| The situation unfolding in Turkey is fluid, but essentially unsurprising. Any emerging market investor who has done even a modicum of due diligence will be aware of the monetary policy problems Turkey has been running for years. President Erdogan’s consistent pressure on the central bank to keep interest rates low – a product of his erroneous belief that high interest rates lead to inflation – has brought Turkey’s macroeconomic situation into serious imbalance, hence placing the country in a vulnerable position. The chickens have now come home to roost. | The situation unfolding in Turkey is fluid, but essentially unsurprising. Any emerging market investor who has done even a modicum of due diligence will be aware of the monetary policy problems Turkey has been running for years. President Erdogan’s consistent pressure on the central bank to keep interest rates low – a product of his erroneous belief that high interest rates lead to inflation – has brought Turkey’s macroeconomic situation into serious imbalance, hence placing the country in a vulnerable position. The chickens have now come home to roost. |
| US President Donald Trump has, in typical fashion, wasted no time in exploiting a minor diplomatic spat over an American pastor jailed in Turkey to add insult to Turkey’s largely self-inflicted injuries by slapping tariffs on Turkey – which will further exacerbate today’s slide. | US President Donald Trump has, in typical fashion, wasted no time in exploiting a minor diplomatic spat over an American pastor jailed in Turkey to add insult to Turkey’s largely self-inflicted injuries by slapping tariffs on Turkey – which will further exacerbate today’s slide. |
| The outlook for Turkey from here remains bleak. Ten years of macroeconomic mismanagement will take a long time to fix even if Turkey begins to follow sensible economic policies from here on out. A recession, and possibly a banking crisis, now look extremely likely. Does Erdogan understand how serious the situation has become? Does he suffer from the ‘dictator problem’, in which his advisers are scared to give him bad news and prudent advice? One thing seems clear now: if Erdogan continues to blame ‘the economic war’ and the ‘interest rate lobby’ then the outlook is even more complicated and any macroeconomic improvement less plausible. | The outlook for Turkey from here remains bleak. Ten years of macroeconomic mismanagement will take a long time to fix even if Turkey begins to follow sensible economic policies from here on out. A recession, and possibly a banking crisis, now look extremely likely. Does Erdogan understand how serious the situation has become? Does he suffer from the ‘dictator problem’, in which his advisers are scared to give him bad news and prudent advice? One thing seems clear now: if Erdogan continues to blame ‘the economic war’ and the ‘interest rate lobby’ then the outlook is even more complicated and any macroeconomic improvement less plausible. |
| We remain underweight Turkey as we have done for some time, but it’s important to remember that this is almost entirely a self-inflicted Turkish issue. No other emerging market country has a president who believes higher rates cause inflation. Investor sentiment towards EM more widely can temporary weaken, which is normal in periods of risk aversion, but such price action is not justified. If asset prices decline in other EMs just because Turkey does not have its house in order this should be viewed as a buying opportunity and exploited ruthlessly. | We remain underweight Turkey as we have done for some time, but it’s important to remember that this is almost entirely a self-inflicted Turkish issue. No other emerging market country has a president who believes higher rates cause inflation. Investor sentiment towards EM more widely can temporary weaken, which is normal in periods of risk aversion, but such price action is not justified. If asset prices decline in other EMs just because Turkey does not have its house in order this should be viewed as a buying opportunity and exploited ruthlessly. |
| Earlier Turkey’s finance minister - and Erdogan’s son-in-law had also tried to ease fears about the country’s economy, including concerns about the central bank’s independence. Associated Press reports: | Earlier Turkey’s finance minister - and Erdogan’s son-in-law had also tried to ease fears about the country’s economy, including concerns about the central bank’s independence. Associated Press reports: |
| In a bid to ease investor concerns about Turkey’s economic policy, the country’s finance minister says the government will safeguard the independence of the central bank. | In a bid to ease investor concerns about Turkey’s economic policy, the country’s finance minister says the government will safeguard the independence of the central bank. |
| Treasury and Finance Minister Berat Albayrak on Friday also vowed sustainable and healthy economic growth as well as “strong struggle” against inflation, which currently stands at close to 16 percent. | Treasury and Finance Minister Berat Albayrak on Friday also vowed sustainable and healthy economic growth as well as “strong struggle” against inflation, which currently stands at close to 16 percent. |
| Albayrak was speaking at a conference where he outlined his ministry’s “new economic policy” as the currency plunged, raising questions about the country’s financial stability. | Albayrak was speaking at a conference where he outlined his ministry’s “new economic policy” as the currency plunged, raising questions about the country’s financial stability. |
| He said: “One of our principles will be ensuring the full independence of monetary policy.” | He said: “One of our principles will be ensuring the full independence of monetary policy.” |
| Investors are worried about the president’s unorthodox economic policies, pressure exerted on the central bank, and a dispute with the United States that has led to sanctions. | Investors are worried about the president’s unorthodox economic policies, pressure exerted on the central bank, and a dispute with the United States that has led to sanctions. |
| Before his second speech and after Donald Trump’s speech, Erdogan was reportedly in contact with Russia: | Before his second speech and after Donald Trump’s speech, Erdogan was reportedly in contact with Russia: |
| BREAKING: Turkey says President Erdogan has held phone call with Russia's Putin to discuss economic ties amid market turmoil. | BREAKING: Turkey says President Erdogan has held phone call with Russia's Putin to discuss economic ties amid market turmoil. |
| Erdogan is practically goading the market into an 8 handle next week https://t.co/2Al06JaWBW | 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. | 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 | #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 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. | He says forget the lira, forget currencies and talks about being in love with the Turkish people. |