Turkey Meltdown: Lira Implodes As Panicked Sellers Spark Global Contagion

The Turkish currency crisis is finally here and it is sending shockwaves around the globe.

After weeks of a slow, but controlled collapse, investors finally hit the panic button overnight, when the Turkish lira crashed as much as 11.2% against the dollar as concern over contagion from Europe’s exposure to the Turkish economic devastation overshadowed promises by the Turkish government to bolster the economy.

The Turkish Lira plunged to a record low of 6.3005 per dollar on Friday morning, before rebounding modestly to 5.88, and is now down more than 35% in the year to date.

And a longer-term chart:

Friday's fall has made the Turkish Lira the worst performing emerging market currency in 2018 and as the currency was headed for its worst week since 2001, its YTD collapse has surpassed even the Argentine Peso.

"Seems like a complete crash, so they need to act now,” said a stunned Morten Lund, strategist at Nordea Bank in Copenhagen. “The lira will keep falling if they don’t hike rates today." Then again with Erdogan's stated preference that rates never go up, it is quite possible that nothing happens.

The collapse also slammed Turkey’s bond market, sending the yield on 10-year government bonds soaring by 93bps to a new record high of 20.67%.

Friday’s fall came after the Financial Times reported that supervisors at the European Central Bank are concerned about exposure of some of Europe's biggest lenders to Turkey, including chiefly BBVA, UniCredit and BNP Paribas. The FT reported that along with the currency’s decline, the ECB's Single Supervisory Mechanism has begun to look more closely at European lenders’ links with Turkey. The moves also came after the US showed no signs of lifting crippling sanctions despite the visit of a Turkish delegation to the US capital.

According to the FT, the ECB is concerned about the risk that Turkish borrowers might not be hedged against the lira’s weakness and begin to default on foreign currency loans, which make up about 40% of the Turkish banking sector’s assets.

And while it does not yet view the situation as critical, it sees Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas, which all have significant operations in Turkey, as particularly exposed, according to two people familiar with the matter.

The ECB news hit Turkey like a rock: "The key to any hope of Turkish stability is the ability for banks to roll over syndicated loans -- so far, that’s been absolutely fine,” said Paul McNamara, a money-manager at GAM UK in London. “I think the FT thing about the ECB being worried about Turkey exposures is a huge new factor."

Contagion quickly spread as the banks named by the ECB as exposed to Turkey saw their stocks plunge as the shockwave spread around the world: Europe’s banks opened on Friday under pressure. The Euro Stoxx Banks index dropped 0.5% in early trading, with BBVA, UniCredit and BNP Paribas among those drawing most scrutiny. Shares in BBVA, UniCredit and BNP Paribas were all down more than 3% on Friday morning.

“We’re likely to see some weakness across the board,” said Kit Juckes, a macro strategist at Société Générale, noting the weight the issue has already imposed on the euro.

Of course, it will be local bank that go first: as a reminder, earlier this week, Goldman published a research report, according to which a drop in the lira to TL7.1 against the dollar “could largely erode banks’ excess capital”.


Renaissance Capital's chief EM economist Charles Robertson  said: "The markets have lost confidence in the triumvirate of President Erdogan, his son-in-law as finance minister and the [central bank’s] ability to act as it needs to."

Jane Foley, head of foreign exchange strategy at Rabobank, added that Erdogan’s “defiant” comments on Thursday night “had reduced the markets’ hope” that the Turkish government is willing to tighten monetary policy or begin economic reform.

Meanwhile, Turkey continues to pretend that all is well, and on Thursday the Turkish finance ministry said that the banking sector was protected by its robust capital structure and balance sheets. “Contrary to the speculative statements being made in the market about our banks and our companies, our regulatory institutions do not see a problem posed by the exchange rate or liquidity risks."

As the FT adds, according to cross-border banking statistics from the Bank for International Settlements, local lenders, including foreign-owned subsidiaries, have dollar claims worth $148bn, up from $36bn in 2006 and euro claims worth $110bn. Spanish banks are owed $83.3bn by Turkish borrowers, French banks are owed $38.4bn and Italian lenders $17bn in a mix of local and foreign currencies. Banks’ Turkish subsidiaries tend to lend in local currency.

Curiously, ahead of the ECB's warning, all the named banks with exposure to Turkey were rather sanguine:

Carlos Torres Vila, chief executive of BBVA, which owns just under half of Turkey’s Garanti Bank, said last month that the group was “really very, very well prepared for the situation”. He said the bank had reduced the weight of its foreign currency loan portfolio and increased the weight of inflation-linked instruments.

Separately, earlier this week, analysts asked UniCredit whether it would need to write down its €2.5bn investment in its 40.9 per cent holding in Turkey’s Yapi Kredi, after the lira’s depreciation dragged the stake’s market value down to €1.15bn. UniCredit responded that Yapi Kredi’s underlying performance was good and the foreign exchange impact would be absorbed by its own reserves. But Goldman analysts said this week that they viewed “Yapi Kredi as the weakest positioned of Turkey’s biggest banks” in terms of capitalisation.

BNP Paribas holds 72.5 per cent of retail bank TEB. One person close to the French lender said its exposure to Turkey was “very limited” at close to 2 per cent of overall group commitments.

* * *

The unprecedented turmoil threatens to scare away the foreign capital Turkey depends on to finance its large external deficit, and hampers companies’ ability to repay foreign-currency loans. Not helping, the government cut its 2018 growth target Thursday to less than 4% from 5.5%, a sign that it is willing to accept a more moderate pace of expansion in an effort to rebalance the economy, Bloomberg reported .

There is some hope for damage control: Treasury and Finance Minister Berat Albayrak, the president's son-in-law, is due to hold a press conference this afternoon, although it is unlikely he will announce what analysts believe are the appropriate measures.

The revisions are unlikely to be enough “to lead to a recovery in markets,” said Erkin Isik, a strategist at Turk Ekonomi Bankasi AS. “If the currency remains at current levels, headline inflation is likely to approach 18 percent year-over-year by September. As a result, current policy rate at 17.75 percent is not tight enough.”

* * *

Today's meltdown took place ahead of a much-anticipated public address by President Recep Tayyip Erdogan.

Speaking outside a mosque earlier today, Erdogan told followers “Don’t forget this: if they have got dollars, we have got our people, our right, our Allah."

Commenting on Erdogan's statement, Bloomberg macro commentator Stephen Kirkland said that it signals he’s sticking to a nationalist message and uninclined to deliver the hard measures Turkish assets need. As a result, option markets are now pricing in a one-in-five chance of USD/TRY reaching 7 per dollar in a month, from about 1% probability yesterday, at which point Turkish excess bank capital is wiped out and the currency crisis becomes a full blown financial panic. Meanwhile, three-month USD/TRY risk reversals have shot up to the highest since 2009 and lira forward points have never been this high in Bloomberg data that goes back to December 1996.

That market capitulation offers Erdogan an element of surprise to turn things around for the lira. Instead, it’s looking increasingly like it may have much further to fall before he takes the necessary action.

As for Turkish Lira longs, Erdogan is right: Allah is indeed all that's left.

Comments

ParkAveFlasher Killtruck Fri, 08/10/2018 - 06:46 Permalink

It's all a ruse.  Top-tier satanists playing demolition derby with the economic machines of nationhood, with their unwitting"constituencies" strapped to the hood, lashed to the roof, or tied up in the trunk.

A great evil has been committed within the last 2 weeks, I don't know what it is, but only God can save us.

DC is utterly satanic.  Obelisk and temples to the dead, HELLOOOO?

In reply to by Killtruck

Scar Bro bugoutbagzyklonB Fri, 08/10/2018 - 09:54 Permalink

Presdint Trump doing this for all the right reasons: MAGA! IN YOUR FACE DISBELIEVERS! This has nothing whatsoever to do with Erdo backstabbing israel, ditching the terrorists and trying to get it awwwnn with Russia. OH NOOOOSSSIR! Presdint Trump just cares bout the peeps - Israeli peeps that is.

What's the next move Vlad? Looks like the gateway to the med is yours if you want it. Erdo is out of moves.

In reply to by bugoutbagzyklonB

asiya789 SunRise Fri, 08/10/2018 - 07:54 Permalink

I q­ui­­­t wo­­­rk­­­­ing m­­­y de­­s­k jo­­­b an­­d n­­o­w,,,I ‘m m­­a­­k­­i­­n­­g $­­9­­7/H­­r w­­o­­r­­k­­i­­n­­g f­­r­­o­­m h­­o­­m­­e b­­y d­­o­­i­­n­­g t­­h­­i­­s s­­i­­m­­p­­l­­e o­­n­­l­­i­­n­­e h­­o­­m­­e j­­o­­b­­z.i e­­a­­r­­n $15 ­­t­­h­­o­­u­­s­­a­­n­­d­­s a m­­o­­n­­t­­h b­­y w­­o­­r­­k­­i­­n­­g o­­n­­l­­i­­n­­e three H­­o­­u­­r p­­a­­r d­­a­­y.i r­­e­­c­­o­­m­­m­­e­­nd­­e­­d y­­o­­u t­­r­­y i­­t.y­­o­­u w­­i­­l­­l l­­o­­s­­e n­­o­­t­­h­­i­­n­­g.j­­u­­s­­t t­­r­­y i­­t o­­u­­t o­­n t­­h­­e f­­o­­l­­l­­o­­w­­i­­n­­g w­­e­­b­­s­­i­­t­­e a­­n­­d e­­a­­r­­n d­­a­­i­­l­­y…g­­­o t­­­o t­­­hi­­­s si­­­te ho­­­me media technical school t­­­a­­­b f­­­or m­­­or­­­e d­­­et­­­a­­­il many thanks
               BeSt Of LuCk 
>>>>>>>> http://www.todaysfox.com

In reply to by SunRise

silverer Adolfsteinbergovitch Fri, 08/10/2018 - 08:15 Permalink

I quit working my kitchen table job, and make $60. an hour using her scam. I just skim off the $37. to pay unwitting morons as ordinary scam laborers, and pocket the rest while I drink all day and screw off. Something that dumb bitch should have thought of. And this is how you immediately know it's a scam, because you can't make jack shit for yourself doing what she/he proposes, because if you could, that stupid scam ad posted for free wouldn't be here.

In reply to by Adolfsteinbergovitch

Farqued Up 1 Alabama Fri, 08/10/2018 - 11:54 Permalink

That’s been my view ever since I heard the Reptoids were the chosen partners by the Gov Gypsies back around the time of FDR and the KC Haberdasher. If Truman had been acting out of his phony scenario of ending the war quickly he would have dropped the first one down the living room chimney of the Emperor in his Palace. Truman was a dumbass hick dancing a Gypsy jig to the latest Gypsy war.

In reply to by 1 Alabama

BeansMcGreens ParkAveFlasher Fri, 08/10/2018 - 09:54 Permalink

Good comment.

And what is the response of people of the US in dire straits?  The devil is just some fairy tale, there is no God, there is no Lake of Fire, screw you white people.

AP news: Outdoor fun dwindles as smoky haze hangs over California

https://apnews.com/8ca67ca2d46c4094a3cb439ea423403b/Outdoor-fun-dwindle…

 

It is all fun and games till its not.

 

In reply to by ParkAveFlasher

Offthebeach Adolfsteinbergovitch Fri, 08/10/2018 - 08:15 Permalink

Accurately you should of said, "What of American Political Economy"

Just, "Economy" is but half, and weaker and less important half, of a description of nations .

China, Russia, Iran, are politacal thugs,  if not dictator states. No free man, no free capital weather man or money, trusts them.  So they are thin, fragile economies.

The US is fat politically.  Every man, knows that he is free and his money here is his, compared to those political shitholes.   

In reply to by Adolfsteinbergovitch

CNONC Kidbuck Fri, 08/10/2018 - 10:12 Permalink

My original interest in International Affairs and Economics as fields of study was my desire to understand why some countries were wealthy and others were poor.  After years of studying silly theories like "dependency theory," "world systems theory," "Rostow's take-off theory," it became evident that all the academics were full of shit.  The relative prosperity of political economies is determined almost entirely by the existence and societal penetration of the Rule of Law, by which I refer not to laws enforced by the exercise of the governmental monopoly on violence, but the societal rules and institutions, including the court system, which guarantee the rights to property and ownership of the proceeds of a legally defined "person.s," whether individual or corporate, efforts, knowledge and investments.  As the Rule of Law declines, so, too, does prosperity.  The United States remains superior to almost all other countries in the quality and penetration of the Rule of Law.  There is, however, no doubt that the US is rapidly abolishing the Rule of Law for its citizens.  The obvious existence of two sets of rules, one for the little people and one for the politically connected elites, as exemplified by the unpunished crimes of the Clinton Foundation, explains why the American middle class is disappearing.  Chupacabra's "open, in your face, Tyrannical Lawlessness" is already in place for the little people.  Politically connected corporations, including banks, can count on the legal system of the US to protect and advocate for their rights, and maintain the orderly, predictable exchange of those rights and their value and the value of the income streams which derive from them, in highly liquid and efficient capital markets.  Thus, the dollar is justifiably more stable and, hence, valuable, than other currencies.  Part of the weakness in EM currencies today is a reflection of the greater confidence that global economic actors have in the protections offered to mobile capital by the US relative to the weakening currencies.

Prosperity is dependent on the Rule of Law.  As we allow our governments to create two tiered systems of law, in both the criminal and civil spheres, our prosperity will decline. I have watched the slide to Lawlessness accelerate over the last 25 years in dumfounded amazement.  I grew up as a free man, and now find myself forced to choose between being a serf and wage slave, complicit in the crimes of my government, or withdrawing from the entire system and settling for a slightly less complicit poverty. 

Chupacabra is right, and I hope he keeps saying it.  It is the existential problem that we face.  How do we defeat-

Open, In Your Face, Tyrannical Lawlessness. 

In reply to by Kidbuck

Maghreb CNONC Fri, 08/10/2018 - 13:09 Permalink

Its not lawlessness these people have no concept of law. There not tyrants either they're completely nuts. Its a fucking circus

They have kleptomaniacs control of the financial system and then had them throw a competition on who could steal the most stuff......

As for Erdogan. He is a little on the Tyrannical side but you wonder if Nation States are to survive then this is the path they will have to take. They got some heavy enemies especially now. they may have most powerful emerging military industrial complex in NATO and probably more man power than German and France due to high birth rates.

They got some pretty heavy enemies. I think Bannon and the Alt Right know this and are going to try and try and weaken Turkey. His new buddy Boris Johnson is Mr Turkey and Mr Arab real estate apparently he's related to a former Caliph or revolutionary martyr or something that means he is supposed to have something to do with Turkey in the eyes of the British establishment. Same story with Roman Catholic fake aristocrat Reese Mogg. The Vatican know Turkeys close ties to Europe mean it will speed up the Islamification of Europe. The rumors of the Turkish Nationalist being the masterminds of the assassination of John Paul the II give it an almost biblical touch. Deep State equals Deep shit. Or just hearsay and speculation on my apartment.  

Israel may also want to create a new world order where Turkey is no longer part of NATO as do the Russians.

https://www.forbes.com/sites/steveforbes/2015/07/22/how-the-small-state…

The aforementioned Crimson hexagon outfit may be angling to create a new more unstable world order where small nation state conflicts are possible. Chinese and Indians may like it as well. 

Crashing the Lira keeps the Euro and Dollar hegemony in place and destabilizing the country weakens the very powerful Turkish military that can provide a great deal of man power. Then there is profitability. 

https://www.timesofisrael.com/israel-sent-jewish-billionaire-to-interce…

The Anglo American Far Right who operate Deep State operations have been talking about Turkey for some time now. Personally its not anti-semitism Nina Rosenwald and the freaks at Gatestone are a major issue perhaps very close to home for me. Like across the fucking street.

https://www.gatestoneinstitute.org/9237/jews-die-turks-celebrate

No hard feelings though I got soft spot for a Donmeh and a certain kind of Freaky Frankist. Poor girls are actually the ones with their eyes wide shut. But we shouldn't mix those kind of affairs with geopolitics though these things get serious amongst the Deep State.
You don't have the Wisdom of Solomon or go through the rights of Khazarian Kingship to understand where things are really going wrong. Hurrians and Hitties are not out friends. Achilles and Paris were what happens to heroes take on gods. Money can't buy love, patriotism or peace but we still keep trying. There are worse ideas. Children of Abraham seemed to have tried them all. When you understand how long these things have gone on for you'll understand why Christians, Jews and Muslims should hate the "Deep State" more than anyone. Its all crypto and unbelievably tragically deep  these days...........Almost Lovecraftian, DeSades surrealism meets his politics......

Better summed up by Music or left as a mystery.

https://www.timesofisrael.com/islamic-state-looting-uncovers-ancient-pa…
https://www.youtube.com/watch?v=RaHLhozTMHU

Funny a lot of my searches seem tone coming up with Israeli News sites first......very odd....

In reply to by CNONC

nmewn Boris Alatovkrap Fri, 08/10/2018 - 06:34 Permalink

Erdogan should appoint himself as head of the Turkish central bank and stop this immediately! Think of the little Turkey cheeelrin!

////

To my downies...is it that, I am not permitted to use children as a political torture device like "progressives" do or that you really can't distinguish genuine, high quality, sarcasm because of your preconceived notions of reality?

So many questions, so early in the morn ;-)

In reply to by Boris Alatovkrap