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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Turkish financial crisis: Erdoğan says 'attacks will continue' – as it happened

Turkish President Recep Tayyip Erdogan addressing the 10th Ambassadors’ Conference at the Presidential Complex in Ankara today
Turkish President Recep Tayyip Erdogan addressing the 10th Ambassadors’ Conference at the Presidential Complex in Ankara today Photograph: Kayhan Ozer/AFP/Getty Images

This liveblog is now closed, but you can catch-up with all the latest developments here:

Turkey: What the papers say

And finally, the Turkish crisis makes the front page of Tuesday’s Guardian:

The Times is reporting that UK holidaymakers are taking advantage of the fact they can now get eight lira to the pound:

President Erdoğan’s defiant speech makes the front page of the Independent, and the Financial Times:

That’s all for today. We’ll back on Tuesday morning, UK time, with the latest market action.

Stay tuned to the Guardian website in the meantime, for any breaking developments. Goodnight! GW

Over in Asia, the markets are cranking back into action for Tuesday’s session.

And so far, the lira looks quite orderly - trading just below 7 lira to the US dollar, as in Europe earlier.

The US stock market has close down lower tonight, as the Turkey crisis weighted on sentiment.

The Dow shed 125 points, or 0.5%, to finish at 25,187.

The wider S&P 500 lost 0.4%.

Energy companies led the sell off, dropping by 1.2%. Banks and miners lost 1%, reflecting worries that the lira crisis could create financial turmoil and dent economic demand.

Full story: Lira's tumble rocks the markets

After a busy day, here’s our economics editor Larry Elliott on the Turkish crisis:

A fresh plunge in the Turkish lira sent tremors through global currency markets on Monday, amid fears that the failure of Recep Tayyip Erdogan’s government to tackle its worsening financial crisis would have a domino effect on other vulnerable countries.

The Argentine peso and the South African rand were the biggest knock-on casualties of a day of turbulence that saw the lira fall 8% against the dollar and Erdogan lash out at “economic terrorists on social media”, as he accused Donald Trump of stabbing Turkey in the back.

But the Turkish president’s insistence that his country would survive an economic siege failed to reassure financial markets alarmed at the possible collapse of the strategically-vital emerging market country.

Concerns that the 45% drop in the value of the lira this year would prove ruinous for companies that had borrowed heavily in foreign currencies prompted the renewed sell off of the lira and pushed up the cost of servicing Turkey’s budget deficit.

Erdogan insisted that the Turkish economy was fundamentally sound and attacked the US president for imposing sanctions and doubling tariffs on Turkey’s steel and aluminium imports last week over the house arrest of an American pastor, Andrew Brunson, on disputed terrorism charges.

“We are together in NATO and then you stab your strategic partner in the back,” Erdogan said as he came under pressure from the markets to respond to the lira’s fall and an inflation rate of more than 15%.

Here’s the full story:

The presidents of Turkey and the US

My colleague Martin Chulov has discovered that the lira crisis has been fuelled by a misunderstanding between the leaders of the US and Turkey.

He writes:

The currency plunge imperilling Turkey’s economy has been fuelled by a standoff between Donald Trump and Recep Tayyip Erdoğan over the fate of a Turkish woman detained in Israel whose freedom the US president brokered, and an American pastor held in Turkey whose release he demands in return, officials in Ankara claim.

Those officials say that Trump may have ‘misinterpreted’ a discussion with Erdoğan over the pair - Turkish woman Ebru Özkan, jailed for alleged links to Hamas (but released last month), and Andrew Brunson, a preacher from North Carolina.

It appears that Trump thought he had reached a deal for Brunson’s release, while Erdoğan believed he’d agreed to transfer the pastor to house arrest (as happened in July).

Martin explains:

“It took place on the margins of the Nato summit,” the source told the Guardian.

“Erdoğan asked Trump for help with the lady in prison in Israel. There was only the two of them and a translator. Trump said: ‘I need some traction on the pastor first’. When Erdoğan said OK he meant that we are working on it. Then [US vice-president Mike] Pence, due to midterm election considerations, messed things up. Trump confused a process for an agreement.”

That might explains why the White House has taken such a tough line on Turkey this week, imposing new sanction and starting the process to double tariffs on steel and aluminium.

Argentina flag

One late newsflash: Argentina’s central bank has raised its benchmark interest rate to a blistering 45% (!), from 40%.

As explained earlier, the peso hit a record low as the Turkish crisis rocked emerging market currencies (and as a political scandal continued to shake confidence).

This rate hike is aimed at preventing the peso plunging even further, and suggest Buenos Aires is concerned that the markets could become more volatile in the days ahead.

Summary: Turkish currency crisis sends shockwaves through markets

A digital billboard giving updates on various currencies and the Turkish stock exchange in Istanbul today.
A digital billboard giving updates on various currencies and the Turkish stock exchange in Istanbul today. Photograph: Yasin Akgul/AFP/Getty Images

Time for a recap

The currency crisis gripping Turkey has deepened today, sending ripples through the financial world and hurting emerging market countries across the globe.

Fears over Turkey’s financial position sent its currency spiralling to a fresh record low, hitting 7.2 lira to the US dollar. The lira has now lost a third of its value in the last week, as the crisis has escalated alarmingly.

The lira vs the US dollar
The lira vs the US dollar

Turkey’s stock market also had a rough day, with bank shares tumbling by over 10%. Economists fear that Turkish companies will struggle to repay loans priced in dollars, given the lira’s plunge in value.

Contagion caused jitters elsewhere too, with India’s rupee and Argentina’s peso dropping to record lows. The Russian rouble and the South African rand hit levels not seen since 2016.

A cocktail of problems are to blame, from Turkey’s surging inflation rate and current account deficit to the diplomatic row with America that means the Turkish economy faces punishing sanctions.

Investors believe that Turkey needs to take decisive action, such as hiking interest rates from their current level of 17.75% to an even more painful rate - perhaps over 27%.

President Recep Tayyip Erdoğan is refusing to bow to pressure from the markets, though.

He told an audience of ambassadors in Ankara that Turkey was under attack from overseas interests:

“The developments over recent weeks have shown that Turkey is under siege.

It is clear that these attacks will continue for a while.”

Turkey’s President Erdogan addressing Turkish Ambassadors today.
Turkey’s President Erdogan addressing Turkish Ambassadors today. Photograph: HANDOUT/Reuters

Erdoğan also blasted US sanctions against its NATO ally, calling them a “stab in the back against Turkey.”

Turkey’s central bank has taken some steps to prop up the lira. It has pledged to “provide all the liquidity the banks need”, which should help them to keep providing loans to people and businesses.

Delphine Arrighi, fund manager at Old Mutual Global Investors, argues that borrowing costs must rise to prevent the lira plunging to fresh depths.

“Other options could include capital controls, which seem more likely than an appeal to the IMF, but that would certainly not be the least painful and would most likely precipitate a recession while postponing the return of portfolio inflows.

Hence a sizable rate hike followed by drastic measures of fiscal consolidation still appear as the most viable option to re-anchor the lira and pull the Turkish economy from the brink.

Turkish authorities have also launched a crackdown against social media accounts, which it blames for spreading ‘fake news’ and undermining confidence in the economy.

Even German chancellor Angela Merkel has weighed in, saying she hoped Turkey could be economically prosperous. She also called for Turkey’s central bank to be properly independent -- a touchy subject, as Erdoğan has been pushing it not to raise interest rates.

There are fears that currency speculators could drive Turkey deeper into the crisis in the days ahead:

And on the streets of Turkey, people have spoken of their concerns as import prices jump and the value of their savings shrinks.

One told the Guardian:

“We don’t really understand any of it. I think it’s political. Erdoğan argues with Trump, and we end up trapped in a corner.”

“We can just pray to God,” he added.

The US stock market is heading lower, as worries over Turkey ripple weigh on Wall Street.

Banks are bearing the brunt, with Goldman Sachs and JP Morgan both down around 1%.

Traders remain worried that the Turkish crisis will escalate, unless Ankara takes more decisive steps - such as an interest rate hike.

A bit more from Ed Conway:

Updated

After a day of heavy losses, Turkey’s stock exchange has closed deep in the red with the benchmark BIST 100 index losing 2.4%.

Financial stocks felt the full blast of the currency crisis, with some bank stocks falling by over 10%.

The slump is even worse if you adjust for the depreciation of the lira, points out Sky News’s Ed Conway in this thread about the situation in Turkey:

Updated

Our economics editor Larry Elliott has written a new Q&A on the Turkish crisis. Here’s a flavour:

What are the implications for the global economy?

The direct impact of what looks like an inevitable recession in Turkey would be relatively small because, despite a population of 80 million and strong growth in recent years, the country accounts for only 1% of global GDP. Eurozone countries run a trade surplus with Turkey but it is small. In the two previous Turkish financial crises since the turn of the millennium, European exporters have been able to divert their business to other markets. The European Central Bank has expressed concern about potential contagion through the eurozone banking system, with Spain, followed by Italy, the most heavily exposed countries.

A bigger danger is that Turkey’s crisis will spill over into other emerging market economies and there were signs on Monday that other countries seen as vulnerable were coming under speculative attack. Turkey’s problems are particularly acute because it has more than $300bn of dollar-denominated corporate debt, which is getting more expensive to finance by the day. However, other countries – such as Mexico and South Africa - also took advantage of low US interest rates in the years after the financial crisis to borrow heavily in dollars and saw their currencies coming under pressure. The fear is of a full-blown emerging market crisis.

The lira is weakening in late trading, and is threatening to plunge back the 7 lira-to-the-US dollar mark to a new all-time low.

Andy Birch, principal economist at IHS Markit, fears the lira will keep tumbling until Turkey raises interest rates:

The changes to reserve requirements in recent days and the government’s unspecified action plan has done little to stabilize the lira. Significantly more than just official promises of action are needed to exit the current crisis. IHS Markit continues to believe that the most immediate step to be taken to rescue the lira is a sharp central bank rate rise.

If this step is taken in conjunction with a shifting of government rhetoric, the plunge of the lira could pause and portfolio investment outflows may slow.

The view in Turkey

Turkish citizens are struggling to cope with the impact of the lira’s astonishing losses in recent days, report Kareem Shaheen and Gokce Saracoglu in Istanbul.

Some fear their businesses could shut down, while others who support the president say they will buy domestic products and shun goods from abroad. Those who cater to tourists, however, hope that the decline in the value of the currency will bring more foreign holidaymakers to the country. All declined to give their full names.

“Go your way, nothing will happen to this country, I’ve seen the lira much lower than this in the 1990s,” said one foreign exchange office worker. Money-changing offices in Istanbul were selling dollars at a much higher rate than the banks on Monday, however, saying the fluctuation in the currency’s value was so unstable as to render the price they set meaningless.

One vegetable and fruit seller said he had been forced to raise the price of imported products. A kilogram of bananas that cost 10 lira last week was now 15 lira.

“We need to send Erdoğan away,” he said.

While ordinary Turks struggle to absorb the effects of high inflation and a declining currency, some foreigners who earn salaries in dollars and tourists are buying up luxury items. Pictures on social media over the weekend showed queues of foreigners outside stores such as Luis Vuitton and Chanel.

“A lot of tourists, especially Arabs, buy from our store,” said the manager of a high-end design store in Galata. “But every 15 days we have to buy new supplies from Europe.

Here’s their full report:

European stock markets have closed in the red, as Turkish worries weigh on shares.

Britain’s FTSE 100 shed 24 points, or 0.3%, to end the day at 7642.

Holiday firm TUI was the worst-performing stock on the Footsie, losing 2.5%. Last week, it revealed it was taking a financial hit on euro-denominated loans taken out to fund hotel building in Turkey. The lira’s losses push up the cost of repaying that debt.

European banks with exposure to the Turkish economy also had a bad day. Spain’s BBVA lost 3.2% while Unicredit shed 2.5%.

Argentina has been hit by the anxiety rippling through the financial markets today.

The peso has fallen to a record low, at around 30 pesos to the US dollar. Back in April it was trading around the 20 mark, before a slump in market confidence forced Buenos Aires to seek a bailout from the International Monetary Fund.

The peso is also being driven down by an unfolding scandal involving alleged bribes made to former officials of the Kirchner government (which was in power until 2015).

More than a dozen business people have been arrested, after it emerged that the chauffeur of a former government official had kept diaries which allege to show payments totalling millions of dollars. The ongoing investigation has also hit share and bond prices, as traders wonder whether more executives, or politicians, will be dragged in.

Despite today’s drama, currency exchange offices have been operating as normal in Turkey today.

Here are some photos from Istanbul:

A currency exchange office in Istanbul, Turkey, today
People line up to exchange money at a currency exchange office in Istanbul, Turkey

While the slump in the lira is bad news for Turkish citizens, it’s something of a boon for tourists. For example, one pound is now worth 8.8 lira -- compared to just 4.5 lira a year ago.

That makes Turkey an attractive destination for Brits, driving down the cost of accommodation and food.

Tourists count their Turkish liras after exchanging foreign currency at a exchange shop in Istanbul.
Tourists count their Turkish liras after exchanging foreign currency at a exchange shop in Istanbul. Photograph: Mucahid Yapici/AP

Economics columnist Matt O’Brien has written a pithy explanation of the Turkish financial crisis, which new readers might find particularly helpful:

In another worrying sign, the cost of insuring Turkish government bonds has jumped today.

The cost of a five-year credit default swap (which would pay out if Ankara can’t repay its bonds) jumped to 573 basis points, up from 452bp on Friday.

That’s according to data firm Markit, and suggests Turkish debt is now seen as riskier.

Technically, it means it would cost $573,000 per year to insure $10m of Turkish debt.

After several hours of volatile trading, the Turkish lira has settled around 6.87 lira to the US dollar.

That’s a loss of around 7% today (a whopping move by usual standards), but also a small recovery on the record low of 7.2 struck overnight.

It also means the lira has still lost a third of its value in the last week.

The news that the Turkish central bank is offering more liquidity to commercial banks (see earlier post) seems to have stemmed the panic.

However, investors still want to see more comprehensive action to tackle its inflation and current account deficit, such as a massive hike in interest rates.

Reto Foellmi, economist from the University of St Gallen, fears that further lira losses could be disastrous:

The vibrant growth of Turkey relied heavily on financing in foreign-currency debt. While Turkish exports get cheaper, Turkish companies face higher repayment obligations of the loans which hurts banks as well.

As the Lira has a reputation as a weak currency, Erdogan’s rhetoric puts oil into the fire. With a further weakening of the Lira, Turkey faces a downward spiral, where default could be the end.

The Turkish crisis dragged world stock markets to a one-month low today.

The MSCI world equity index, which tracks shares in 47 countries, fell 0.6% this morning, as the Turkish lira hit fresh record lows against the US dollar.

That was driven by losses in Asia overnight, in Europe this morning, and at emerging markets across the world.

Dean Popplewell of City firm OANDA says anxiety over Turkey has “severely bullied emerging markets into near submission.”

In Japan, the Nikkei tumbled -2% to a five-week low overnight as a sell-off in emerging market currencies frightened investors, with the safe-haven yen’s (¥110.20) appreciation also hurting sentiment. The broader Topix dropped -2.1%.

Down-under, Aussie shares ended lower overnight, weighed down by materials and banks after the crisis in Turkey hit Asian assets, while global trade turmoil pushed commodity prices lower. The S&P/ASX 200 index fell -0.4%. In S. Korea, the Kospi ended down -1.5%, in line with other Asian countries.

However, America’s stock market is holding its nerve. Wall Street is calm in early trading, with the Dow Jones industrial average up 60 points (or 0.23%).

A currency exchange office in Istanbul, Turkey, today, as the lira hit a record low of 7.2 against the US dollar
A currency exchange office in Istanbul, Turkey, today, as the lira hit a record low of 7.2 against the US dollar Photograph: Sedat Suna/EPA

The EIU’s Agathe Demarais adds that Turkey has a lot of work to do to regain market confidence -- but it’s not clear that such measures will be taken.....

With an overheated and indebted economy, Turkey will require credibly orthodox economic policies, fiscal discipline and central bank independence to reverse the current situation.

A normalisation of relations with the US could also reduce the amount of legwork that the central bank will have to do to control the economic situation, but this is unlikely to happen at the moment.

In view of the domestic political and economic conditions, it is therefore unclear whether the necessary steps will be taken to contain the market fallout.

Agathe Demarais, Turkey analyst at The Economist Intelligence Unit, has predicted that Western banks will suffer losses from the Turkish lira’s slump soon.

She told the AFP newswire that the impact of the currency crisis will ripple through the financial world, as Turkish companies find they can’t service loans taken out in dollars.

“So far the impact of the lira crash has been limited in Europe and the rest of the world.

“However, within a few months western banks that have strong ties with Turkey will feel the impact of the crisis as Turkish corporates will struggle to repay debt in foreign currency.

“The sharp depreciation of the lira has almost doubled the local currency value of external debt repayments since the start of the year.”

German Chancellor Angela Merkel

German chancellor Angela Merkel has now waded into the crisis, urging Turkey to ensure the independence of its central bank.

Merkel told a news conference in Berlin that:

“No one has an interest in an economic destabilisation inTurkey. But everything must be done to ensure an independent central bank,.

Germany would like to see an economically prosperous Turkey. This is in our interest.”

The Turkish central bank has been restricted by Erdoğan’s opposition to higher borrowing costs (he believes they cause inflation, while most economists believe they restrict it).

Turkish interest rates are currently 17.75% -- very high by current standards. Some City experts, though, argue they should be hiked by over 1000 basis points (to around 27%) to prop up the lira.

Turkish President Recep Tayyip Erdogan addressing a luncheon at of the 10th Ambassadors’ Conference at the Presidential Complex in Ankara today.
Turkish President Recep Tayyip Erdogan addressing the 10th Ambassadors’ Conference at the Presidential Complex in Ankara today. Photograph: Kayhan Ozer/AFP/Getty Images

And here’s Associated Press’s take on the Turkish leader’s speech earlier today.

Turkish President Recep Tayyip Erdogan says his country is under an economic “siege” that has nothing to do with its economic indicators.

During an address to Turkish ambassadors in the capital, Ankara, Erdogan said Monday that Turkey would overcome the “attack” on its economy.

He insisted that Turkey’s economy remains strong and said the currency would soon settle “at the most reasonable level.”

In an apparent reference to the United States, Erdogan said “the bullies of the global system cannot roughly, shamelessly encroach on our gains that were paid for by blood.”

The Turkish leader’s comments came after authorities launched investigations into hundreds of social media accounts for alleged reports they claimed were helping the currency’s plunge.

Erdogan said there is an “economic terror” being waged on social media, adding that “traitors” would be punished.

Updated

Here’s Reuters first take on the Erdoğan speech:

President Tayyip Erdoğan said on Monday he expected attacks on Turkey’s economy to continue but predicted the lira would return to “rational levels” soon, after the Turkish currency hit a record low of more than 7 to the U.S. dollar.

Erdoğan, who has described the lira’s fall as the consequence of a plot rather than economic fundamentals, also said that spreading false news about the economy was treason and recent U.S. actions were a stab in the back against Ankara.

Here’s a clip of president Erdoğan addressing the Ambassadors’ conference a moment ago:

The lira is weakening, following Erdoğan’s claim that America is trying to stab Turkey in the back.

It has dropped back to 6.9 lira to the US dollar, close to this morning’s record low of 7.2.

President Erdoğan has also declared that spreading false news about false news about Turkey’s economy is “treason”.

That follows this morning’s crackdown on social media accounts blamed for sharing misleading information about the crisis.

Erdoğan: We must prepare for more attacks

Recep Tayyip Erdoğan speaking in Ankara
Recep Tayyip Erdoğan speaking in Ankara Photograph: Bloomberg TV

Heads-up: Turkish president Recep Tayyip Erdoğan is giving a speech now, 10th annual Ambassadors’ Conference in Ankara.

Bloomberg say Erdoğan has told the conference that Turkey must prepare for further attacks on its economy.

He has accused America of breaking World Trade Organisation principles (presumably by doubling tariffs on Turkish metal exports last week).

Erdoğan adds that America is trying to stab Turkey in the back.

On the market turmoil, Erdoğan has told his audience that the lira would settle at a rational level soon. There is no ‘economic basis’ for recent exchange rate moves, he adds.

There will also be no retreat from free market economic policies, he insists.

More details to follow soon

Updated

Some UK stocks are taking a direct hit from the Turkey crisis.

Travel firm TUI is leading the FTSE 100 fallers, down 3.3% this morning. In theory, the slump in the lira makes Turkey a more attractive holiday destination. In practice, reports of financial instability are likely to deter tourists.

Ashmore, a fund manager focused on emerging markets, is down 5%.

Stockbroker AJ Bell explains:

“Fund management group Ashmore is widely seen as the London-listed bellwether for emerging markets and its shares are unsurprisingly being sold off in the wake of the crisis in Turkey.

“The recent collapse in the Turkish lira has served to trouble investors around the world and triggered a ‘risk-off’ mentality. Put simply, investors are less willing to hold assets in higher risk areas such as emerging markets, and are switching instead to assets deemed to be safer havens.

Fiona Cinoctta, senior market analyst at City Index, reckons the Turkish government only has a few days to stem the crisis.

She warns that the slump in the lira could prompt some companies to default on their US dollar loans, triggering a domino effect:

The lira had already declined 20% against the dollar on Friday on a mixture of domestic financial problems and increasing friction with the US and the decline continued this morning with the Turkish currency plumbing new lows.

For the time being Turkey’s financial crisis looks localised but the country’s central bank has perhaps only days to stop the decline of the currency before the lira’s freefall results in loan defaults, starts seriously affecting the country’s financial system and potentially starts spilling over onto European banks.

Into this domestically induced financial slide comes the deteriorating relationship between Turkey and the US. The US is holding it against Turkey that it is refusing to support US sanctions against Iran and that is not releasing an American pastor who is being held on terrorism charges. The US response was fairly clear cut – on Friday when the lira was in freefall the US announced it would raise the tariffs on imports of Turkish steel to 50% and the tariffs take effect Monday morning.

The selloff at the Istanbul stock market is gathering pace.

The BIST 100 index has fallen 4%, with some bank stocks suffering double-digit losses.

You can get up to speed on the Turkey crisis with this Q&A:

Plus, here’s economics editor Larry Elliott on why Turkey needs to raise interest rates sharply, or turn to the IMF for help....

Erdoğan’s answer to the financial crisis – that his followers should do their patriotic duty and exchange rapidly appreciating US dollars for ever-more worthless Turkish lira – is laughable. Indeed, it will merely add to the belief in the world’s financial markets that Turkey is being led by a man who has lost touch with reality.

It is clear what needs to happen. Turkey has to tackle the three causes of its current predicament: an overheating economy; Erdoğan’s attempts since his re-election in June to prevent the central bank from taking the necessary action to deal with rising prices; and the stand-off with the US.

For Erdoğan, that means eating a huge plateful of humble pie. He is going to have to surrender to Trump over [jailed pastor Andrew] Brunson, because he is damaging the economy by continuing with a fight he cannot win. And he will need to accept that tough and unpopular measures are now inevitable to prevent a total collapse in the currency leading to hyper-inflation.

The slump in the Turkish lira in recent weeks is quite extraordinary.

It has lost a third of its value against the US dollar in a week (!) as investors have grown more anxious about the country’s financial health, its diplomatic row with the US, and its central bank’s reluctance (or inability) to raise borrowing costs to stem the crisis.

The lira vs the US dollar

This chart shows how the crisis could spread to Europe, if Turkish banks find themselves struggling to repay dollar-denominated debts:

European exposure to Turkey

Updated

Turkey blames 'fake news' for financial crisis

Turkish authorities have launched a crackdown on news and social media posts which are threatening confidence in the economy, according to local reports.

Turkish financial regulators are threatening legal action against those who make or publish “erroneous and fabricated news and statements”.

Almost 350 social media accounts are under investigation, for undermining the lira’s exchange rate against the US dollar.

The move comes as president Erdoğan’s office warns that there is a co-ordinated attempt to undermine the country’s economy.

Hürriyet Daily News has the details:

The Chief Prosecutor’s Office in Istanbul has opened an investigation into actions threatening “economic security,” while Turkey’s financial watchdog launched a separate probe into what it described as “fake news” aiming to manipulate economy.

“An investigation has been launched according to Turkish Penal Law, Banking Law, Capital Markets Board regulations and related laws into people who displayed actions that threaten economic security through manipulative stories on media and operational social media accounts as part of the economic attacks that target the Republic of Turkey, its social peace, unity and economic security by the powers behind the [2016] coup attempt,” the prosecutor’s office said in a statement on August 13, according to the state-run Anadolu Agency.

In a separate statement, Turkey’s Interior Ministry said that “a judicial investigation has been launched into 346 social media accounts who shared posts to provoke the rise in the dollar exchange rate.”

Meanwhile, Turkey’s Financial Crime Investigation Board (MASAK) also launched a probe into what it described as “fake news” aiming to manipulate economy.

“MASAK started an investigation into people and institutions that spread fake news, such as those claiming that ‘the state will intervene to convert foreign exchange in accounts into Turkish lira’ and ‘it will fix dollar exchange rate’ by ditching floating rate policy, which is a main pillar of the free market,” Treasure and Finance Ministry Press Undersecretary Ali Berber said in a tweet on Aug. 13.

More here: Turkey launches probe into ‘fake news’ over lira rumors

Updated

Overnight, the president’s communications chief, Fahrettin Altun, has claimed there is a “disinformation campaign” underway to undermine confidence in Turkey’s financial sector.

He is unhappy about reports that President Erdoğan is threatening to seize foreign currency deposits.

Over the weekend, Erdoğan warned he would take new measures if businesses rushed to withdraw their bank funds. He told an audience in Trabzon that:

“It is industrialists’ duty too to keep this nation on its feet. Otherwise we will set into motion our plan B and C.”

Altun insist on Twitter, though, that this has been misinterpreted (although he doesn’t reveal what Plans B or C might be):

A bad day for emerging currencies

People changing money at a currency exchange office in Istanbul today
People changing money at a currency exchange office in Istanbul today Photograph: Osman Orsal/Reuters

Emerging currencies across the globe are suffering from the Turkish crisis.

The South African rand has dropped to a two-year low, while Russia’s rouble is at its lowest against the US dollar since early 2016.

India’s rupee hit a record low, with traders reporting that the country’s central bank had intervened to prevent an even steeper loss.

The Turkish lira is still sharply lower today, down 6% at 6.8 lira to the US dollar (having plunged through 7 lira in early trading).

With the US dollar strengthening, traders fear that developing economies are going to suffer capital outflows - potentially creating fresh currency crises.

Neil Wilson of Markets.com fears further pain for emerging markets [EM in City jargon].

The dollar is the big winner in all this as investors turn away from EM. This may very well make things worse, particularly as long-dollar increasingly becomes something of a one-way trade.

This dollar rally has a lot further to go and this will heap more misery on EM.

European bank shares hit by contagion worries

European bank shares are leading the selloff, driven by fears that they could be dragged into the Turkish crisis.

Several European financial institution, including Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas, have significant operations in Turkey.

They have borrowed in US dollars and may struggle to repay those debts unless the lira recovers.

BBVA shares have fallen by 2.2%, Unicredit have lost 2% and BNP Paribas are down 1%.

On Friday, the Financial Times reported that the European Central Bank is concerned about their exposure to the Turkish crisis.

European bank exposure to Turkey

Anxiety about spillover effects from Turkey is also pinning the euro at a one-year low against the US dollar (down half a cent at $1.137 right now).

Yesterday, Turkish finance minister Berat Albayrak pledged that a new economic action plan would be implemented today.

He announced:

“From Monday morning onwards our institutions will take the necessary steps and will share the announcements with the market.”

But that promise, and the Turkish central bank’s new measures, don’t appear to be stemming the crisis.

Konstantinos Anthis, head of research at financial services group ADSS, says Turkish policymakers need to do more:

Erdogan’s speeches over the weekend did little to calm down investors as he remains defiant and this morning news that the Turkish central bank implemented measures to improve liquidity is not addressing the main issue which is the lira’s decline.

Ergodan’s unwillingness to raise interest rates suggests that the situation might not be defused soon extending the risk-off sentiment seen across all markets.

Updated

European stock markets open in the red

Anxiety over Turkey is hitting share prices across Europe too, following those losses in Asia earlier today.

The main European indices have all fallen into the red in early trading. Germany’s DAX has lost 0.8%, and Britain’s FTSE 100 is down 0.45% or 35 points at 7631.

Jasper Lawler of London Capital Group says contagion fears are engulfing the markets.

The panic that engulfed the markets at the end of last week is showing no signs of going anywhere at the start of the new week. Traders were met with a sea of red as indices dived across the Asian session; investors shunned riskier assets overnight while safer havens such as the Japanese yen and Swiss Franc firmed; jitters surrounding the Turkish currency crisis were showing few signs of moving on.

The Turkish Lira dropped a further 6.3% in trading overnight, breaking through TL7 and hitting an all time low of TL7.2 after comments from Turkish President Recep Tayyip Erdogan over the weekend failed to calm investors.

The lack of any new significant policy and a defiant stance from Erdogan means that traders are bracing themselves for another day of hectic trading on Monday.

Pedestrians walking past a stock indicator showing share prices of the Tokyo Stock Exchange in Tokyo.
Pedestrians walking past a stock indicator showing share prices of the Tokyo Stock Exchange in Tokyo. Photograph: Kazuhiro Nogi/AFP/Getty Images

Turkey’s stock market is suffering heavy losses this morning.

The BIST 30 index of Turkey’s top countries has slumped by 2.5% in early trading, with virtually every share down.

Financial stocks, utilities and consumer-focused companies are all leading the selloff, as investors fear that the financial crisis is escalating.

Hussein Sayed, chief market strategist at foreign exchange firm FXTM, argues that Turkish policymakers need take much more decisive action, immediately.

With inflation expected to run above 20%, a current account deficit that continues to widen, bond yields trading at record highs and growing political tensions with the U.S., the Turkish administration have limited choices to stop the Lira from bleeding.

Investors need to see serious economic measures and not political ones to prevent things getting completely out of control. This includes an emergency interest rate hike by the central bank, imposing capital controls, fiscal reforms, securing a rescue package by the IMF or other lenders and ending the current diplomatic fight with Donald Trump.

Until such steps are taken, investors will continue to selloff Turkish assets.

Turkish central bank announces measures

Turkey’s central bank has taken action to stem the crisis, after seeing the lira slump to a record low today.

The central bank of Turkey has announced several measures to “support financial stability and sustain the effective functioning of markets”.

This includes providing “all the liquidity the banks need”, and taking a more active role in the foreign exchange markets.

In a statement (online here), the bank says:

The Central Bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary.

It’s an attempt to stabilize the tumbling lira and improve liquidity in the banking system.

The move is having some success - the lira has recovered to around 6.7 against the dollar, from this morning’s record low of 7.2. But, that still means it has suffered a huge depreciation in the last week:

The Turkish lira over the last week
The Turkish lira has plunged by a quarter in the last week Photograph: Bloomberg TV

Crucially, the bank has NOT raised interest rates, despite some economists arguing they need to increase by perhaps 10 percentage points.

Robert Bergqvist, chief economist at Swedish bank SEB, thinks more needs to be done:

Updated

Euro hits one-day low in nervy trading

Asian stock markets and emerging currencies have been hit by the Turkish crisis today, and the euro has been dragged down to its lowest level in a year.

My colleague Martin Farrer explains:

The Turkish lira fell almost 9% in early trading on Monday and the euro hit a one-year low as investors feared that the country’s financial crisis could spread to European markets.

Despite defiant words by the Turkish president Recep Tayyip Erdoğan over the weekend pledging as yet unspecified action to reverse the slide, the currency slipped alarmingly against the US dollar on Monday.

Asian stock markets were also down on Monday. The Nikkei in Japan lost 1.7%, Hong Kong was off 1.8%, Shanghai -1.7%, Sydney -0.5% and the Taiwanese bourse fell 3%.

The euro dropped 0.3% to a one-year low against the US dollar on Monday as the falling lira fuelled demand for safe havens, including the greenback, Swiss franc and yen. The Vix volatility index measuring turbulence in financial markets – also known as the fear index – jumped 16% on Monday.

More here:

The agenda: Turkish currency crisis rattles markets

Turkey’s President Recep Tayyip Erdogan shaking hands with supporters in Black Sea city of Trabzon, Turkey, on Sunday.
Turkey’s President Recep Tayyip Erdogan shaking hands with supporters in Black Sea city of Trabzon, Turkey, on Sunday. Photograph: AP

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Fear is sweeping through the financial markets this morning as Turkey falls deeper into a currency crisis.

The Turkish lira has slumped to new record lows overnight, hitting more than 7 lira to the US dollar. That followed Friday’s precipitous declines, as investors fear that the country could be heading towards full-blown financial chaos.

The crisis has been building for months as Turkey’s inflation rate has surged higher, its current account deficit has risen, and its economy has been hurt by the strengthening US dollar.

Recep Tayyip Erdoğan’s increasing autocratic governing stance - including putting his son-in-law into a key post running the economy - has spooked the markets. So has his dislike of higher interest rates, which would typically be used to prop up a weakening currency like the lira.

Donald Trump’s decision to double Turkey’s steel and aluminium tariffs on Friday has added to the sense of panic.

President Erdoğan did nothing to reassure investors over the weekend.

Instead, in a series of public addresses, he blasted the United States over the dispute over a jailed US pastor, and appeared to hint that Turkey – a Nato member – might look elsewhere for help (Russia, perhaps?)

He declared:

“We will say bye bye to those, who sacrifice their strategic partnership and alliance with a country of 81 million people on the altar of their relations with terror organisations.

“We are working day and night for alternative markets.”

Erdoğan also urged the Turkish people to do their bit, by converting any spare dollar and euros into lira.

He told supporters in the north-eastern Turkish town of Ünye that:

“If there are dollars under your pillow, take these out.

“If there are euros, take these out … immediately give these to the banks and convert to Turkish lira and, by doing this, we fight this war of independence and the future. Because this is the language they understand.”

Unless Turkish policymakers can get a grip, the situation could easily cause serious problems in other markets.

David Madden of CMC Markets explains:

The Turkish lira has taken a battering, and the banks in Turkey who have borrowed in euros might struggle to repay their loans if they haven’t hedged their position. Some eurozone banks have substantial shareholdings in Turkish bank, and should the default rate rise in Turkey, it could have a knock on effect around Europe.

It looks like the eurozone banking system is set for another period of turmoil as the exposure that some Spanish and French banks have to Turkey could hurt confidence in the region. European banks have enough to worry about with their own non-performing loans, and let alone Turkey’s weakened loan books. When it comes to the health of banks, traders usually steer clear of stocks and seek out safe-haven assets such as government bonds or the Japanese yen.

We’ll be tracking all the main events through the day...

Updated

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