Friday, 17 August, 2018

Turkey Crisis Highlights a Better Way to Buy Emerging-Market Debt

Turkey fails to resolve disputes with US Turkish lira plunges as President Erdogan tells citizens to sell foreign currency amid 'economic war'
Elsie Buchanan | 11 August, 2018, 06:25

President Trump's announcement Friday morning that he has authorized the doubling of tariffs on steel and aluminum imports coming from Turkey came in a tweet that noted, "Our relations with Turkey are not good at this time!"

The President said he had authorised higher tariffs on imports from Turkey, imposing duties of 20 percent on aluminium and 50 percent on steel.

The currency slid almost 8 percent in relation to the dollar to a record low of 6.59 shortly after Trump announced the increase on metals duties on Twitter.

On March 1, Trump had announced global tariffs of 10 percent on all aluminum to the USA and 25 percent on all steel imports.

Concerns mounted Friday after a report in the Financial Times that the supervisory wing of the European Central Bank had over the last weeks begun to look more closely at eurozone lenders' exposure to Turkey.

Erdogan said during an address to supporters: "Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks".

Turkey's currency plunged to more than six and a half lira against the dollar, a fall of about 20 percent, overnight and into Friday after a Turkish delegation returned from talks in Washington on Thursday with no apparent solutions to the row.

It all started with Turkey's own mistakes - or, more accurately, with Turkish President Recep Tayyip Erdogan's.

USA stocks fell Friday amid the geopolitical concerns that pushed the Turkish lira to the record low against the dollar. The Nasdaq composite was down more than 0.8 percent as technology stocks also dropped.

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Investors piled into "safe" government debt, with German yields hitting three-week lows and the yield on the benchmark US 10-year Treasury note falling to 2.8750 percent as investors sought its safety. But this seems less likely as Erdogan and his mouthpieces in the media cast the United States' moves as some kind of epic battle to wreck Turkey, and Trump just gave them fresh ammunition.

Paul Greer at Fidelity International said dramatic interventions were now needed as Turkey faced a "downward spiral" of investor confidence. 'On some days, I end the day with a loss'.

The lira, which had traded at 4 to the dollar as late as April, was being quoted at more than 7 to the dollar at one point Friday before rebounding to about 6.4.

When Brunson was remanded from prison to house arrest, Trump tweeted that Brunson was "a great Christian family man and wonderful human being" who was "suffering greatly".

While there was no statement from the Turkish side, US State Department spokesperson Heather Nauert said wide-ranging conversations had been held.

"US and Turkey are breaking up", Mr Cook told The National, recommending that Washington instead focuses on "how the tanking of the Lira affects other emerging market currencies, and moving to contain the contagion". The first one was Erdogan gave a speech doubling down on his failed policies, saying once again all their problems were the result of an "economic war" being waged against Turkey.

Turkey's new economic perspective was unveiled on Friday by the state's top economic official, Treasury and Finance Minister Berat Albayrak.

Analysts suggest Erdogan could have Washington in mind, given Ankara is demanding the extradition of US -based Turkish cleric Fethullah Gulen, who is blamed for masterminding the botched 2016 military takeover.

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