Get all your news in one place.
100’s of premium titles.
One app.
Start reading
The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Turkish lira rallies as Qatar invests $15bn, but markets slide - as it happened

Turkey’s President Recep Tayyip Erdogan and the Emir of Qatar Sheikh Tamim bin Hamad Al-Thani today
Turkey’s President Recep Tayyip Erdogan and the Emir of Qatar Sheikh Tamim bin Hamad Al-Thani today Photograph: Kayhan Ozer/AFP/Getty Images

Summary: Qatar cash helps lira recover

Time for a recap:

Qatar has come to Turkey’s aid today, pledging to invest $15bn in the country to help it ride out its currency crisis. The offer came as Turkish president Erdoğan hosted Sheikh Tamim bin Hamad Al-Thani, emir of the Gulf state (photos).

Analysts believe the move will help Turkey ride out the crisis - with the money committed to helping the financial sector. In the long run, though, many investors are looking for conventional measures such as an interest rate hike.

Turkey has escalated the diplomatic row with the US today, by slapping hefty tariffs on American imports. Cars, spirits and beauty products will all become much more expensive, as Ankara retaliates against America’s metals tariffs.

Turkey has also taken steps to prevent traders betting against its currency. Financial regulators tightens the rules around foreign exchange derivatives, making it harder to ‘short’ the lira.

After days of heavy losses, the lira has staged a recovery. The currency has gained over 5% today to trade around 6 lira to the US dollar, compared with a record low of 7 earlier this week.

Fiona Cincotta of City Index says:

The limits on shorting the Lira taken by Ankara have halted the slide in the currency, which has firmed over 4% after its 20% decline, easing contagion fears and cooling the threat on financials.

Whilst this is a short-term measure, its doing the trick for now. However, it was the more confrontational move by Ankara to raise tariffs on American cars, alcohol, cigarettes, escalating tensions with the US that has caught the market’s attention and increased flows into safe havens such as the Japanese Yen and Swiss Franc.

Financial markets have indeed had a bad day. Shares fell across Europe, and commodity prices were hit by worries over emerging markets - including Turkey and China.

Here’s our latest news story on the situation in Turkey:

That’s all for today (unless any major news breaks tonight....) Thanks for reading and commenting. GW

Updated

Political scientist Soner Cagaptay of the Washington Institute believes Qatar’s help could be crucial for Turkey.

He also points out that Ankara stood with Doha during last year’s blockade drama; Erdoğan loyalty then could be paying off now (as explained earlier).

With a dull clunk, the copper price has sunk into a bear market. It’s lost 20% of its value since June!

Three factors are driving the markets down, says Charlie Robertson of Renaissance Capital -- the buoyant US dollar, America’s trade disputes, and the prospect of US interest rates going up.

He says (via Reuters)

“It is dollar strength, Trump’s trade wars and Fed tightening. They are an ugly combination for emerging markets.”

Robertson is also cautious about Qatar’s pledge to invest $15bn in Turkey. When will we actually see the money, and will it be invested sensibly?

Emerging markets fall into bear territory

After a rough day, Britain’s FTSE 100 has sunk to its lowest closing level since 26 April.

The blue-chip index shed 113 points to 7497, a loss of 1.5%.

Germany’s DAX closed 1.6% lower, while France lost 1.8%.

Many developing markets also suffered losses today, which dragged emerging market shares into a bear market.

The MSCI’s main EM equities index is down 2% today, and 20% lower than its recent peak in January.

European stock markets tonight
European stock markets tonight Photograph: Thomson Reuters

Oliver Jones of Capital Economics blames worries about China, rather than Turkey:

While there has been comparatively little news on the Sino-US trade war in the past few days, the Chinese activity and credit data released earlier this week were weak. They confirmed that domestic headwinds – especially the ongoing slowdown in credit growth – are at least as big a threat to the country’s economy as US protectionism.

In our view, these headwinds mean that China’s economy will continue to slow over the rest of this year. And this is a key reason why we think that EM [emerging market] assets will generally continue to struggle, regardless of what happens in Turkey. Countries that rely heavily on trade with China, most of whom are located in Emerging Asia, are probably particularly exposed. Alongside China itself, these countries dominate the main EM equity benchmarks, including the MSCI EM Index.

Qatar’s move is a start, but not enough to rescue Turkey, says Mohamed A. El-Erian of financial services giant Allianz.

Qatar offers Turkey $15bn of investment

BREAKING: Qatar has agreed to invest $15bn in Turkey, according to Turkish officials.

This pledge follows the meeting between Qatari Emir Sheikh Tamim bin Hamad Al-Thani and President Recep Tayyip Erdoğan in Ankara today.

The money will apparently be ‘channeled into Turkey’s financial markets and banks’.

The lira is strengthening following this announcement, now up 6% at 5.95 lira to the US dollar, from around 6.35 last night.

Wall Street is also on the back foot, with the Dow Jones industrial average dropping by over 1%.

Markets hit by emerging market fears

The big picture today is that shares are down, commodity price are taking a hammering, and many currencies are losing ground against the US dollar.

France’s CAC index is having a particularly rough time, down 2%, with Germany and Portugal both down 1.8%.

Zinc is down over 6%, and oil has lost 2.5%, as traders fret that an emerging markets crisis will hurt growth.

Shares, commodity prices, currencies, bonds, and CDS prices

David Madden of CMC Markets says dealers are worried about the currency crisis in Turkey, and the cooling of Chinese growth.

European banks have lost ground today as investors are concerned the financial problems in Turkey could spread to the eurozone.

Natural resource stocks like BHP Billiton, Rio Tinto, Randgold Resources and Glencore are all lower on the session as metals are under severe pressure. Copper, Platinum and Palladium are weaker as traders are concerned the Chinese economy is cooling, and yesterday’s disappointing fixed asset investment and industrial production reports from Beijing confirmed their fears.

The renminbi has been steadily losing ground versus the US dollar since March and it’s near its all-time-low, and that sums up the cautious sentiment surrounding China.

Bank shares are also having a bad day, as Turkish contagion fears ripple.

It’s turning into a rough day in the City of London.

The FTSE 100 index of top share is now down 121 points, or 1.6%, at 7490. That’s its lowest level since late April.

Mining stocks are still being hit hard , with some natural resource giants down over 5%. The strong dollar is pushing commodity prices down, and there is also concern that global growth could be hit by the Turkish crisis. If emerging market countries are forced to raise interest rates to support their currencies, it could dampen demand.

European stock markets this afternoon
European stock markets this afternoon Photograph: Thomson Reuters

Sterling is also being hurt by the dollar rally. The pound is down half a cent at $1.267, its lowest level in 14 months.

The pound vs the US dollar over the last two years
The pound vs the US dollar over the last two years Photograph: Thomson Reuters

Erdoğan and Merkel speak

Newsflash: Turkey’s president has held talks with German chancellor Angela Merkel.

The two leaders agreed to strengthen their bilateral ties, according to Turkish officials.

Associated Press has more details:

Officials from Erdogan’s office said during their conversation on Wednesday the two leaders confirmed their commitment to maintaining high-level visits and contacts to strengthen cooperation.

They said that Turkish Treasury and Finance Minister Berat Albayrak would meet with his German counterpart, but did not provide a date. The two also discussed their planned meeting in Berlin at the end of next month, the officials said.

Relations between Berlin and Ankara have been strained over the last couple of years. Erdoğan was angered when Germany blocked several rallies in the run-up to last year’s referendum, while Berlin protested when Die Welt reporter Deniz Yücel was imprisoned - for a year - on propaganda charges.

Just in: Photos of the Emir of Qatar, Sheikh Tamim bin Hamad al-Thani, conducting his ‘working visit’ with Turkish president Recep Tayyip Erdoğan today:

Turkey’s President Recep Tayyip Erdogan (R) and the Emir of Qatar Sheikh Tamim bin Hamad Al-Thani posing for a photo prior to their talks in Ankara.
President Erdoğan (right) and Sheikh Tamim bin Hamad Al-Thani posing for a photo prior to their talks in Ankara. Photograph: Kayhan Ozer/AFP/Getty Images
They were joined by Turkish Treasury and Finance Minister Berat Albayrak (2nd right) for lunch
They were joined by Turkish Treasury and Finance Minister Berat Albayrak (2nd right) for lunch Photograph: Anadolu Agency/Getty Images

A court in Istanbul has decided to release the Honorary Chair of Amnesty International Turkey, Taner Kilic, after more than fourteen months behind bars.

Kilic had been detained in June 2017 and charged with membership of a terrorist organisation, which he denies.

It’s interesting that he’s being released now -- at a time when Turkey is looking for help and support from other nations. Yesterday, two Greek soldiers who were arrested in March for entering Turkey illegally were released.

However, there’s no legal progress on the case of American pastor Andrew Brunson, despite US pressure....

Kumi Naidoo, Amnesty International’s new Secretary General, says the organisation is “overjoyed” at the news, and will keep pushing for more detainees to be released.

Naidoo explains:

Beneath the smiles of joy and relief there will be sorrow, anger and a steely determination.

Sorrow for all the things Taner has missed during his cruel incarceration. Anger that the baseless charges against him and the Istanbul 10 have not been dropped. And determination to continue our fight for human rights in Turkey and for the release of all those human rights defenders, journalists and others who have been unjustly jailed in the vicious crackdown.

“We are overjoyed at this news. It has taken us more than a year of campaigning and struggle to get here, but it appears that Taner will finally be freed. Whilst we rejoice at this decision, our celebrations will only truly begin when he is safely back at home in the arms of his wife and daughters.

Updated

Artjom Hatsaturjants, research analyst at Accendo Markets, says investors are nervous over the “geopolitical back-and-forth between US and Turkey”.

Neither side appears ready to back down over recent confrontation that sent the Turkish lira to new lows and raised a spectre of FX contagion across Europe.

The turmoil in Turkey is testing stock market morale and sending the US dollar to its highest level since mid-2017, say Dean Popplewell of foreign exchange firm OANDA.

U.S Treasuries prices have climbed a tad, while the greenback trades atop its 15-month highs against G20 currency pairs, again putting commodity prices under pressure.

In Turkey, President Erdogan implemented an additional tax on a range of U.S imports (autos, tobacco and alcohol), signalling its squabble with the U.S. will continue.

Updated

A 100 Turkish lira banknote is seen on top of 50 Turkish lira banknotes.

Crumbs. Foreign exchange firm International Currency Exchange (ICE) says it ran out of Turkish lira on Tuesday, after a surge in demand.

ICE says that orders for Turkish Lira to its UK website www.iceplc.com jumped by 24,000% compared to the average last month.

Most of its UK stores have sold out of lira, but you can still get your hands on them at London Luton Airport and Doncaster Airport.

This surge in demand indicates that many British tourists have decided to take a last-minute holiday to Turkey, which are much cheaper thanks to the currency crisis.

One pound is currently worth 7.7 lira on the international currency exchanges, up from 6 lira at the start of July.

Louis Bridger, general manager at ICE, says there has been “unprecented demand” for the lira.

We are working closely with our suppliers and the Turkish Central Bank to increase our stock however the demand is so high that it’s unlikely we will be able to sell Turkish Lira online until tomorrow morning. We apologise if any customers are experiencing delays when purchasing their currency.

For people travelling to Turkey who are unable to get their hands on Lira, they can take alternative major currencies such as US dollars and Euros which are easily exchangeable when they are out there.”

Turkish trepidation pulls markets down

European stock markets have all fallen into the red, as nervous traders pile into the US dollar.

In London, the FTSE 100 has slid by 75 points, or 1%, with hefty losses on other markets too

European stock markets today
European stock markets today Photograph: Thomson Reuters

Mining shares are leading the selloff in London, with Anglo American shedding 4.5%.

They’re suffering from falling commodity prices, with copper and zinc on the slide. That’s partly because the US dollar is rallying, hitting a 14-month high this morning.

Ken Odeluga, market analyst at City Index, blames anxiety over the Turkish financial crisis:

Turkey is nowhere near fixed, so risk appetite is struggling to make a comeback.

European stock markets have steadily slipped into the red since the open, also leading a retreat by Wall Street futures.

Prospects of a smooth and sustained recovery for emerging market currencies had looked too dicey to Asia-Pacific investors, so markets there mostly fell as well. Turkey’s lira lost all Wednesday gains at one point, following Tuesday’s bounce of more than 8%. It is now firmer again, though clearly volatile. It’s uncertain whether the rebound will be sustained.

Comebacks by other currencies that fell sharply in recent days, like the rand, Russia’s rouble and Mexico’s peso, also falter.

Turkish trade minister Ruhsar Pekcan says the new tariffs will “protect the rights of Turkish companies”, as well as retaliating against America’s tariffs on steel and aluminium

Pekcan also insisted Turkey isn’t dependent on the US, saying:

The United States is an important trading partner, but it is not our only partner. We have other partners and alternative markets.”

(via Turkey’s Anadolu news agency)

Hiking tariffs won’t help Turkey tackle its key financial challenge -- to keep servicing its foreign loans.

Turkish companies owe almost $300bn in foreign denominated debt. That includes a surge in borrowing by Turkish banks, who have tapped foreign wholesale markets to help fund its credit boom.

The slide in the lira in recent weeks has pushed up the cost of refinancing those loans (finding a new lender when an existing debt matures).

Jurgen Odenius, Economic Counsellor at PGIM Fixed Income, explains:

The root cause of the crisis lies in a leverage-financed domestic demand boom that increased the external financing requirement of Turkey’s corporations, banks, and government to an estimated $229 billion this year. Most of these liabilities fall on the private sector, mainly banks and corporations; the sovereign owes only $11 billion. What makes the problem worse is that the external financing requirement is trending up over the medium term, indicative of a long-standing over-reliance on foreign-funded leverage.

As the lira collapses, this lending boom now is undoubtedly grinding to a sudden halt. Foreign financiers, whether they exist as banks or bond investors, are re-assessing the outlook and related repayment prospects. Western European banks from Spain and France are particularly exposed, with over half of the debt owed to them. The trouble is that the Turkish financial system and the corporate sector are short dollars.

GAM’s Paul McNamara says the issue is crucial:

Turkish tariffs, the details

Turkey’s new swathe of tariffs are going to have a major impact on the cost of US goods.

The list, published on the country’s Official Gazette, shows that the levies on some products will more than double.

For example:

  • Rice: Tariff more than doubled to 50%, up from 20%
  • Spirits: Tariff more than tripled to 140%, up from 40%
  • Coal: Tariff raised to 14%,from 10%
  • Beauty and make-up products: Tariff doubled to 60%, from 30%
  • Certain types of paper: Tariff doubled to 50%, from 25%
  • Motor cars: Tariff more than tripled to 120%, from 35%

Back in Turkey, the government is preparing for show of support from Qatar.

The emir of Qatar, Sheikh Tamim bin Hamad al-Thani, left Doha to travel to Ankara for a “working visit” with president Erdoğan.

The Gulf Times says they will discuss bilateral relations between Qatar and Turkey.

They will also examine:

“means of strengthening the existing strategic cooperation between the two countries in various fields, in addition to a number of issues of mutual interest.

Turkey and Qatar are close allies. There is a Turkish military base in the Gulf state, and Turkey was quick to send food aid to Qatar when Saudi Arabia imposed a blockade last year.

However, the wealthy Gulf state might be reluctant to anger America by providing Ankara with financial aid at this time.

UK inflation data

Just in: New inflation figures show that Britain’s cost of living squeeze continues.

The consumer prices index rose by 2.5% in July, up from 2.4% in June - the first year-on-year increase in 2018.

The wider retail prices index rose by 3.2%, down from 3.4%, and faster than basic pay (which increased by 2.7% in the last year).

Total pay, including bonuses, only rose by 2.4% in the last year.

This RPI figure is used to set UK rail fares, so commuters should brace for prices to increase in 2019.

Updated

Turkish media are reporting that a court has rejected an appeal for the release of American pastor Andrew Brunson.

Hurriyet newspaper said the court in Izmir rejected the appeal from Brunson’s lawyer, but that a higher court would review the appeal.

If Brunson remains under house arrest, it’s hard to see US-Turkey relations improving....

Economist Jens Bastian fears for Turkey’s financial prospects:

Robert Ward of the Economist Intelligence Unit says Turkey needs a ‘decisive orthodox’ response to the currency crisis (ie, a chunky interest rate hike), rather than tariffs on US goods.

Updated

Bloomberg has calculated that Turkey’s new tariffs cover around $1bn of US imports.

That’s similar to the amount of Turkish steel and aluminium exports that were subjected to higher tariffs by President Donald Trump last week, suggesting this genuinely is a tit-for-tat response.

Updated

The lira’s recovery comes as Turkey’s financial regulators impose new restrictions on the country’s banks.

These rules make it harder for banks to buy and sell foreign exchange derivatives with overseas banks.

That will prevent some investors from betting against the lira.

Reuters has the details:

Turkish banking watchdog BDDK on Wednesday said it is cutting the limit for Turkish banks’ forex swap, spot and forward transactions with foreign banks to 25 percent of a bank’s equity.

The BDDK had said on Sunday that the limit would be 50 percent of the bank’s equity.

n a statement, the BDDK said the rate will be calculated daily and new transactions will not be performed or renewed until the current excess of the amount is realised at a quarter of a bank’s capital.

Paul McNamara, investment director at asset manager GAM, says this squeeze will have helped the lira recover:

Investor Martin Enlund points out that it will also make it harder for Turkish investors to protect themselves from the crisis:

Updated

Lira rallies back below 6 to the dollar

Boom! Turkey’s currency just dipped back below the psychologically important 6-lira-to-the-dollar mark, as this morning’s rally continues.

The Turkish lira has risen by 2.5% in early trading, after Ankara hit the US with fresh tariffs.

It’s currently changing hands at below 6.2 lira to the dollar, up from around 6.35 lira last night, extending Tuesday’s recovery.

That’s still an extremely weak position compared to four months ago, though, when one dollar was only worth 4 lira.

The lira vs the US dollar
The lira vs the US dollar Photograph: Thomson Reuters

Introduction: Turkey hikes tariffs on US goods

People shopping at an Egyptian Bazaar in Istanbul, Turkey, 13 August 2018.
People shopping at an Egyptian Bazaar in Istanbul, Turkey, 13 August 2018. Photograph: Erdem Sahin/EPA

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

Turkey has raised the stakes in its diplomatic battle with America by hiking the tariffs on some US goods.

Fuat Oktay, the country’s vice-president, says the measures are a retaliation for the US government’s “deliberate attacks” on the Turkish economy in recent weeks.

Under the plan, the tax on US alcohol will be hiked to 140%, the car tariff is going up to 120%, while tariffs on coal, cosmetics and rice are also being raised.

Oktay declared on Twitter that Turkey was responding to America’s decision to double the tariffs on Turkish steel and aluminium.

He tweeted:

“The import duties were increased on some products, under the principle of reciprocity, in response to the U.S.administration’s deliberate attacks on our economy,”

The move comes a day after president Recep Tayyip Erdoğan announced a boycott on US electrical goods, encouraging Turks to shun iPhones and support local manufacturer Vestel instead.

Last night, the White House renewed its calls for Turkey to release the evangelical pastor who has been detained by Turkish authorities on espionage charges since 2016.

White House Press Secretary Sarah Sanders told reporters:

“The president has a great deal of frustration on the fact that Pastor Brunson has not been released as well as the fact that other U.S. citizens and employees of diplomatic facilities have not been released.”

So with the crisis still swirling, investors around the globe will remain nervous. We’ll be tracking all the main events through the day....

The agenda

  • 9.30am BST: UK inflation for July
  • 9.30am BST: UK house price data for June
  • 1.30pm BST: US retail sales

Updated

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Urine luck: seven expert tips for peeing correctly
Doctors share healthful habits for managing urination and debunk misconceptions about trips to the bathroom
The Guardian - US
The Guardian - US
Zendaya fuels speculation she secretly married Tom Holland after flashing gold band in new photos
The actress was seen wearing the gold band as she promotes her upcoming film, The Drama, days after stylist Law Roach claimed that the couple ‘already’ tied the knot
Evening Standard
Evening Standard
From Mulder and Scully to Marge and Homer: your favourite TV couples
Slow-burn office crushes that left you weeping, sitcoms that made you fall in love and vampire shows that changed you for ever: Guardian readers pick their ultimate television romances
The Guardian - UK
The Guardian - UK
Jessie Buckley says she is ‘lover of cats’ as actress clarifies earlier comments
The Oscar-nominated actress told The Tonight Show Starring Jimmy Fallon that she once auditioned to be a cat.
Evening Standard
Evening Standard
Clone Theories Explained: Jim Carrey's Recent Appearance Revives Rumours That Have Haunted Other Celebs For Years
Other artists, including Britney Spears, Beyoncé, and Eminem, and most recently Selena Gomez, have also been referenced in similar internet narratives.
International Business Times UK
International Business Times UK
Oprah Ozempic Before and After Photos Leave Fans Shocked — Is She Taking Extreme Measures?
Fans react to Oprah's transformation as viral photos prompt questions about her weight loss and possible use of Ozempic or similar medications.
International Business Times UK
International Business Times UK
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.
Download on the AppStore Get it on Google Play