Capital Economics analysts suspect Turkey has been intervening to support the lira today/
In Emerging Europe, Turkey’s financial markets came under renewed stress on Wednesday….
The lira was down by 2% against the dollar, although there appeared to be heavy intervention (probably by state banks) to limit the fall.
CNBC says Turkey is struggling to defend its currency ahead of Sunday’s elections, forcing Ankara to restrict access to the lira.
The slide in Turkey’s equity market came as the government directed the country’s banks to withhold lira liquidity from the offshore swap market in an attempt to keep the lira from falling sharply.
This sent the overnight Turkish swap rate to 1,200 percent, by far the highest ever, according to Reuters.
Turkey’s move effectively kept foreign investors from betting against Turkish assets ahead of local elections that are largely seen as a referendum on President Recep Tayyip Erdogan.
Turkish stocks dive and key interest rate hits 1,200% https://t.co/HxzliAc7i6
The drama at the Istanbul stock market has not been matched in Europe, where trading has ended with a whimper.
In London, the FTSE 100 just closed 2 points lower at 7194. Germany’s DAX closed flat, while the French CAC shed 0.1%.
The pound is nudging higher tonight, as MPs prepare to hold a series of indicative votes to try to break the Brexit deadlock.
ING Bank have pulled together a handy checklist of some of the options:
Brexit options Photograph: ING
It’s been dramatic in Westminster – there’s speculation that the DUP (who have refused to back the PM’s Withdrawal Agreement) will released a statement later.
Plus, speaker John Bercow has made a potentially significant intervention, saying the government can’t hold a third vote on the WA unless it has changed.
Over in Germany, chipmaker Infineon has spooked investors with a profits warning.
The company slashed its sales outlook for 2019, blaming the weaker global economy and particularly the slowdown in China.
“A number of end-markets continue to be sluggish.
In particular, the trend of declining vehicle sales in China has accelerated in February, causing dealer inventories to increase sharply.”
This is another blow to confidence in the tech sector, just a day after South Korea’s Samsung issued a profit warning, due to weaker demand for iPhones.
The head of Turkey’s banking association has weighed in, denying that domestic banks are deliberately withholding lira from foreign rivals.
Instead, he insists, Turkish banks are keen to get their hands on lira themselves, thanks to the current currency squeeze.
Reuters has the details:
Reports that the Turkish lira’s swap rates are surging due to Turkish banks withholding lira liquidity from foreign banks are not true, the head of Turkey’s banking association told Reuters on Wednesday.
Earlier on Wednesday, sources told Reuters that Turkey would keep directing its banks to withhold lira liquidity from a key foreign market at least until after local elections on Sunday.
In a statement to Reuters, Huseyin Aydin said the reason behind the rise in lira swap rates was that there was not enough lira for foreign banks to buy dollars, and added that Turkey had shown the necessary stance against a speculative attack on the lira.
Aydin said Turkish banks were not sources of liquidity, but rather they were looking for themselves. He said decisions by banks on liquidity were business-based and in line with international laws and regulation.
Newsflash: Turkey’s stock market has suffered its biggest one-day fall since the summer of 2016.
The BIST 100, which tracks Turkey’s 100 largest companies, shed 5,544 points to close at 91,833 points.
Holger Zschaepitz (@Schuldensuehner)
This sell-off highlights how investors liquidating stocks to get their hands on lira, given the squeeze on overnight lending rates.
Joe Weisenthal (@TheStalwart)
*TURKEY’S BIST 100 ENDS DOWN 5.7%, BIGGEST DROP SINCE JULY 2016 https://t.co/RqvUVSCk5s
The currency crunch created by Ankara to prop up the lira is intensifying.
The lira overnight swap rate has now jumped again, to 1,200%, says Reuters, double the (already alarming) level seen early this morning.
Paul McNamara (@M_PaulMcNamara)
Turkish Offshore Overnight Rate watch: screen 600%, heard 750% traded.
Marc-André Fongern of MAF Global Forex has a prediction:
Marc-André Fongern 🇪🇺 (@Fongern_FX)
Turkey | TRY : The central bank (CBRT) will likely cut interest rates after the elections (we see the first cut in H2-2019) on softening inflation and a more benign global backdrop. cc. @TD_Canada #Turkey #USDTRY #Lira #FX cc. @graemewearden
International banks have been hurt by President Erdoğan’s clampdown on speculation, says Bloomberg:
Turkey further roiled markets by preventing foreign banks from accessing the liras they need to close out their swap positions. That’s made it almost impossible for bankers to short the lira or exit carry trades, and forced the overnight lira rate up to about 1,000% from 23%.
Some foreign banks were unable to meet their obligations at the close of trading on Tuesday, forcing the central bank to extend hours for transferring funds in Turkey to 9 p.m., according to a senior Turkish official, who spoke on condition of anonymity.
On Wednesday, the Turkish stock and bond markets took the brunt of the hit from the measures meant to protect the lira: banking stocks were down more than 7% and the yield on 10-year lira bonds rose 74 basis points to 18.23%.
As you can see, the Turkish lira has been extremely volatile today, but it’s still stronger against the dollar than on Friday.
The Turkish lira vs the US dollar Photograph: Refinitiv
Brad Bechtel of investment bank Jefferies blames Turkish president Erdoğan for the currency market panic.
Erdoğan hit the campaign trail last week, ahead of local elections this Sunday.
During his tour, he criticised the US for backing Israel’s claim on the Golan Heights, fuelling concerns of another clash with Washington. He also claimed that speculators were “soaking up foreign currencies from the market and engaging in provocative actions”.
This sort of talk tends to make the markets jittery, says Bechtel:
The US dollar/Turkish lira spot rate had kicked off at the end of the week last week on the back of Erdogan’s thrust back into the limelight as he campaigns for local elections. Anytime he gets back on the mic the currency tends to kick off and we’ve had a 7% round trip the last 3 days in spot.
Expect the currency to remain volatile throughout this election cycle as the market will take the sentiment in the local elections to be a vote of confidence on Erdogan himself. Also the longer he keeps talking the more we are likely to see these extreme moves.
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