Having already sparked a sell-off on stock markets late last week, the lira crisis did more damage to equities in Europe and on Wall Street.
In London, the FTSE 100 closed 0.3% down at 7,642.45 points; in Frankfurt, the DAX 30 ended 0.5% down at 12,358.74 points; and in Paris, the CAC 40 finished flat at 5,412.32 points; whereas, the EURO STOXX 50 lost 0.5% at 3,410.10 points at close.
The US dollar, the yen and the Swiss franc were scared investors’ preferred safe havens.
The lira dived to record lows of 7.24 to the dollar and 8.12 versus the euro very early in the day, then recovered somewhat after Turkey’s central bank announced a raft of measures aimed at calming markets, only to slip back again late in the session.
Worries were focused on the possible impact on some European banks, including Spain’s BBVA, Italy’s UniCredit and France’sbnP Paribas.
The lira had tumbled some 16% against the dollar on Friday, as US President Donald Trump said he had doubled tariffs on steel and aluminium from Turkey.
The crisis has been sparked by a series of issues including a faltering economy — the central bank has defied market calls for rate hikes — and tensions with the United States, which has hit Turkey with sanctions over its detention of an American pastor.
Investors are now fretting over potential economic contagion.
In its first statement since what was dubbed “Black Friday” in Turkey, the nation’s central bank said yesterday that it was ready to take “all necessary measures” to ensure financial stability, promising to provide banks with “all the liquidity” they need.
The bank also revised reserve requirement ratios for banks, in a move also aimed at staving off any liquidity issues.
But to the dismay of markets, the statement gave no clear promise of rate hikes, which is what most economists say is needed.
In Frankfurt yesterday, investors fled shares in German chemicals and pharmaceuticals giant Bayer, fearing a massive damages ruling against one of newly-acquired US firm Monsanto’s flagship products could signal a wave of costly lawsuits.
A California jury on Friday awarded dying groundskeeper Dewayne Johnson damages of almost $290mn, saying Monsanto should have warned buyers that its flagship Roundup weedkiller could cause cancer.
While observers have predicted thousands of other suits could follow, Bayer said the jury’s findings went against scientific evidence and that other courts might “arrive at different conclusions”.
