Market news: Stocks drop on Monday as Turkey lira crisis continues

Stock
markets have been shaken by Turkey’s currency
crisis.
REUTERS/Brendan
McDermid

• European markets slide as fears over the collapse of
  the Turkish lira continue to spook investors.
• All major European indices are lower, with Spain and
  Italy leading losses in the first hour of trade.
• Falls follow major drops in Asia overnight.
• Last week, Turkey’s currency collapsed by more than 25%
  against the dollar amid rising tensions between the USA and
  President Recip Tayyip Erdogan over trade.
• 
  You can follow
  the progress of markets over the day on Markets
  Insider.
  

LONDON — European
markets started the week deep in negative territory as the
continuing crisis over the Turkish
lira drags on investor sentiment around the world.

Asian markets fell sharply overnight, and those falls have
now spread into Europe. All major European share indices are
lower around an hour after the trading session began on Monday.

Spain and Italy are the biggest losers, down around 1% each.
Elsewhere, markets are seeing losses of between 0.5% and 0.8% as
investors continue to digest
last week’s 25% fall in the lira.

The Turkish currency’s slide comes amid rising tensions between
the US and President Recip Tayyip Erdogan over trade. US
President Trump authorised increased tariffs against Turkey on
Friday.

Erdogan himself exacerbated problems on Friday when he urged
citizens to sell dollars and gold in exchange for lira. Over the
weekend Erdogan doubled down, saying there was a “currency plot”
against Turkey and argued the fall in the lira was not connected
to economic fundamentals.

The lira’s slide continued on Monday and the currency dropped as
much as 10% against the US dollar in thin early morning trading,
before stabilising a little as the morning progressed.

Markets remain unclear on the Turkish government’s response to
the crisis, although
the Turkish central bank did pledge to maintain stability in
the financial system in a statement issued early Monday morning.

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

Those assurances did arrest the fall of the lira somewhat, but
could not stop equity investors from selling. Here’s the
scoreboard in Europe:

The major concern around the lira is that its weakness will start
to affect European banks. The eurozone’s chief financial watchdog
has become worried about the exposure of major European lenders —
mainly Spanish and French banks — to Turkish debt.

“Because of the high participation of foreign banks and portfolio
investors in Turkey, there are clear risks of contagion,” Hasnain
Malik, strategist and head of equity research at Exotix, said in
an email.

Capital Economics warned in a note on Friday that
Spain, Italy, and France are likely to be the worst hit by the
Turkish currency crisis due to the exposure of their banking
systems. But the analyst house said the impact would be
relatively limited due to the limited size of the Turkish
economy.

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