The Turkish lira has been front and centre again this week after last week’s sharp declines, sending global shares lower as trading starts a new week.
Weekend comments by President Erdogan suggest he has no intention of backing away from his comments on Friday that the country was in an economic war.
He repeated his call that citizens convert their US dollars and euros into lira, while at the same time saying that he would never give into the calls to hike interest rates, sending the lira briefly through the 7 level in Asia trading earlier today, before the currency rebounded after the Turkish central bank added $6bn of liquidity to the market.
With no indication that either Erdogan or his new finance minister, and son in law, Berat Albayrak are looking to change course, the outlook is already having ripple out effects into other emerging markets, as well as raising concerns about European bank exposure to the Turkish economy and the banking system.
While on its own this crisis may well seem contained, and small in nature, there does appear to be a sense that this was yet another reason for investors to take a step back. Against an already difficult geopolitical backdrop, coming as it has on the back of rising concerns over an escalation between the US and China on trade, the implementation of new sanctions against Russia last week, this growing crisis in Turkey appears to be giving investors too many balls to juggle, hence this latest bout of risk aversion, which is also having some ripple out effects into other currencies including the South African rand.
The bigger concern is that last week’s tariff escalation by the US could merely be the beginning of a further measures to exert economic pressure on Turkey, which in turn could create further ripple out effects.
European banks have also remained under pressure over concern about their exposure to the Turkish banking system, though today’s weakness appears to be fairly modest, compared to Friday’s declines.
In other stocks news German pharmaceuticals group Bayer (DE:BAYGN) has seen its share price plunge after the weekend ruling in a US court that found that its Monsanto’s “RoundUp” weed killer had caused cancer, awarding the plaintiff $289m in damages. While the company has said it will appeal and has denied a causal link there is concern that further rulings and lawsuits could follow.
The shipping industry is usually seen as a decent bellwether of global growth so today’s trading update from shipping giant Clarkson (LON:CKN) isn’t likely to make for encouraging reading, with profits and revenues lower. Pre-tax profits for the first half of the year came in at £18m, down from £21.9m a year ago, while revenues were also disappointing falling from £156.8m to £152.6m, nonetheless markets have reacted positively after management left their full guidance unchanged.
The relief would appear to be down to the fact that the company didn’t follow up this year’s earlier profits warning with another one, so these numbers didn’t come as too much of a surprise, and while guidance was kept unchanged. The numbers do indicate though that trading conditions aren’t exactly optimal.
Defence contractor Chemring Group (LON:CHG) shares are also sharply lower after an employee was tragically killed and another injured at its factory in Salisbury at the end of last week. The company warned that while it was still early days and that investigations were ongoing there would be a financial impact as a result of the short term closure of the facility and any future financial restitution measures.
The US dollar has continued its rise sending both the pound and euro to new multi month lows.
US markets look set to open lower on the back of today’s weaker Asia and European sessions with Tesla shares likely to remain in focus in the wake of last week’s tweet by CEO Elon Musk that finding had been secured for a $420 a share buyout. Recent news flow appears to suggest that this may well have been a bit of a stretch with reports over the weekend that Saudi Arabia’s sovereign wealth fund was in talks to be of an investor pool, suggesting that any proposed deal is anything but “secured”
Dow Jones is expected to open 110 points lower at 25,203
S&P500 is expected to open 10 points lower at 2,823
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