Published: Fri, August 10, 2018
Business | By Tara Barton

Bank stocks dive, euro falls as Turkey turmoil spreads

Bank stocks dive, euro falls as Turkey turmoil spreads

Turkey's lira hit a new record low against the USA dollar in early trade on Friday, as concerns over a widening rift with the United States persisted after a Turkish delegation returned from talks in Washington with no apparent solutions to the crisis.

Deepening investor concerns about Turkey's authoritarian trajectory under President Recep Tayyip Erdogan and the economic fallout have also weighed on the currency.

The lira has fallen more than 35 percent this year after losing almost a quarter of its value in 2017.

Speaking to supporters in the Black Sea province of Rize late on Thursday, Erdogan dismissed concerns over the currency as a campaign against his country.

"There are several campaigns being carried out [against Turkey]".

"In most cases though, we suspect that this resilience will prove temporary", they said, highlighting expectations of rising USA interest rates and worries over growing USA protectionism.

"Seems like a complete crash, so they need to act now", said Morten Lund, a strategist at Nordea Bank AB in Copenhagen told Bloomberg.

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"You have some very odd politics with the president interfering with monetary policy - they are picking fights with Europe, they are picking fights with the Americans", said Paul McNamara, an investment director at GAM London Limited, as quoted by Reuters.

Berat Albayrak, the Treasury minister and Mr Erdogan's son-in-law, is due to announce a "new economic model" for Turkey...

"In any case, sanctions on the Turkish banking sector would be catastrophic as Turkey is dependent on capital inflows to finance its high current account deficit".

Investors are now awaiting the release of the USA consumer price inflation for July for clues on the interest rate outlook and to gauge if new import tariffs were starting to have an impact.

Furthermore, the bank sees hope in other recent crises, like the attempted coup in 2016.

And even if eurozone exports to Turkey fell through the floor, previous experience has shown that European companies are "pretty quick in identifying and switching to new markets". Once any crisis was over, the bank expects exports to recover quickly. "The Europeans should have known that they should not lend to distressed banks", criticizes Boratav.

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