Turkey contagion risks are elevated - ANZ
Analysts at ANZ Bank New Zealand Limited ("ANZ") explained that there was a strong risk-off move in global markets as President Erdogan’s speech failed to calm nerves and President Trump pledged to double the steel and aluminium tariffs against the country.
"The USD strengthened across the board, treasury yields fell, stocks were sold, and commodities were mixed."
"The Turkish lira fell 15% on Friday, bringing year to date declines to 42% in a country with considerable foreign-denominated debt. Emerging market currencies followed with the Argentinian peso falling close to 4% and frontier markets off nearly 3%. The JPY was the only G10 currency to appreciate against the USD, rising 0.3%."
"EUR fell 1%, testing 1.14, with European banks exposed to Turkey (see below)."
"Treasury yields fell 4-5bps across the curve. Italian yields rose 10-15bps due to perceived risks to the banking sector; Spanish yields were up only 2-3bps."
"The main equity indexes fell 1.6 to 2% in Europe, with the S&P 500 down 0.7% in the US. Turkish shares fell around 16% in a US-traded ETF."
"WTI oil rose around 1% with gold – oddly –unchanged. Agricultural commodities fell with USDA updating their stocks and production estimates higher. Soy prices were off nearly 5%; other agricultural products were down 3%."