What's behind the current US-Turkey spat?

What's behind the current US-Turkey spat?

What's behind the current US-Turkey spat?

On Friday that relentless slide turned into a crash: the lira dropped as much as 18 percent, hitting USA and European stocks as investors took fright over banks' exposure to Turkey.

Economists say the lira's fall is due to worries about Erdogan's influence over the economy, his repeated calls for lower interest rates, and worsening ties with the United States over the detention of a Christian pastor and other disputes.

Turkey's president, Recep Tayyip Erdoğan, is opposed to raising interest rates to cool down the economy and support the currency, and has used his recent election victory to impose his unorthodox views on the country's central bank. It fell as much as 12 per cent at one stage on Monday, then recovered to a loss of 8.5 per cent.

Turkish President Recep Tayyip Erdogan said on Saturday that his country was now looking to form alternative economic alliances from "Iran, to Russian Federation, to China and some European countries", after the United States "upset and annoyed" its North Atlantic Treaty Organisation ally with sanctions that greatly exacerbated the lira's existing troubles. "This would be another blow for EMs as an asset class". Contagion is also fueled by concern that fund managers who have lost heavily in Turkey or other emerging assets will look to sell more liquid parts of those portfolios to meet expected redemptions.

The dollar strengthened as traders dumped Turkish lira.

Also weighing on the materials index were shares of First Majestic Silver Corp., which fell 14.9 per cent after the miner reported a larger-than-expected loss in the second quarter.

Investors have grown increasingly concerned about President Tayyip Erdogan's growing control over the economy and a deepening diplomatic rift with the United States, with those concerns snowballing into a market panic last week.

"The global financial system is so interconnected that we tend to think of them as a group and financials come under pressure", said Art Hogan, chief market strategist at B. Riley FBR in NY.

Turkey and the United States have disagreed on a number of issues in recent years, including the war in Syria and a USA refusal to extradite Fethullah Gulen, a cleric Erdogan claims is behind the botched attempt to unseat him. The Nasdaq composite broke an eight-day rising trend and sank 0.7 percent to 7,839.11.

In Asian trading, the euro also skidded to a one year low of $1.13, the single currency's lowest level against the USA currency since July 2017.

On Monday, benchmark stock indexes in Tokyo, Hong Kong and Shanghai were all down more than 1.5% in late morning trading. Turkey's Istanbul 100 stock market hit its lowest level in dollar terms since March 2009. "Bond yields might start to widen and most Aussie banks borrow a fair bit from offshore".

Thomas Cook also lost 2.4 percent and EasyJet retreated 1.4 percent. US gold futures fell 1.52 percent to $1,200.50 an ounce.

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

'Aluminum will now be 20 per cent and Steel 50 per cent. BBVA is the most exposed, followed by UCG, ING, BNPP and HSBC, whose share price was down 0.8 per cent in afternoon trading. The Canadian Syncrude processing facility has begun ramping up light oil production and was expected to return to full production in September.

Foreign exchange strategists with Commonwealth Bank of Australia (CBA) reckon the Euro exchange rates will not suffer lasting damage from the Turkish financial crisis.

They would be in addition to the tariffs of 25 per cent on steel and 10 per cent on aluminum that the USA imposed in March for imports from a variety of countries.

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