Global Stocks Drop Amid Concerns About Turkey
10 August 2018 - 12:23PM
Dow Jones News
By Ben St. Clair
Global stocks fell, the euro declined and investors moved into
the dollar Friday amid fears that ongoing financial instability in
Turkey will impact other markets.
The euro was down 0.5% to $1.1463 and the dollar hit a one-year
high as investors looked for safe assets, before falling slightly.
The WSJ Dollar Index was up 0.5%.
The Stoxx Europe 600 fell 0.8% in morning trade, following Asian
markets lower. Futures pointed a 0.4% opening fall for the S&P
500.
The markets moves followed a Financial Times report that the
European Central Bank is examining the Turkish exposure of several
European banks.
The ECB's banking watchdog is monitoring the situation in Turkey
and is in contact with eurozone banks about their individual
exposures to the country with a view to calculating overall
repercussions for the banking sector, a person familiar with the
matter said. While the ECB's concern isn't too high at this point,
the central bank is monitoring how the weakening Turkish lira, and
the country's economy, could potentially hurt eurozone banks.
The lira fell by over 10% at one point and was down 6.5% in
morning European trading Friday. That brings its losses to 14.4% on
the week after the U.S. imposed sanctions and investors fretted
about the health of the country's financial system.
The Stoxx Europe banking sector dropped 1.3% on concerns about
lenders' exposure to debts in Turkey. Among banks with large
exposure to the country, shares of Spain's BBVA were down 3%,
Italy's UniCredit was down 3% and France's BNP Paribas was down
3.4%.
As markets fell, analysts and investors debated just how far
concerns over Turkey could spread at a time when there are concerns
about the effect of a rising dollar on emerging markets and a
potential trade war between the U.S. and China.
Still, the level of overall exposure of European banks to Turkey
remains limited, according to Carsten Hesse, European economist for
Barenberg Bank. "That the fallout from Turkey could cause any
credit crunch in any part of the eurozone seems highly unlikely,"
Mr. Hesse wrote in a note Friday.
Mr. Hesse said that even if eurozone goods exports to Turkey
were to fall by around 20% this would subtract no more than 0.1
percentage point from growth in the currency bloc.
Investors have been concerned that President Recep Tayyip
Erdogan is threatening the independence of the Turkey's central
bank. The central bank left interest rates unchanged last month,
and "many investors believe that political pressure is keeping the
central bank from taking the necessary steps," wrote Commerzbank
Chief Economist Jörg Krämer in a note Friday.
Many investors have shied away from emerging markets this year
as a rising dollar and U.S. interest rates make
greenback-denominated debt more expensive to pay back and
refinance. Strong U.S. corporate earnings and positive economic
data have also given investors fewer reasons to invest in riskier
markets.
"I don't see that market backdrop changing terribly quickly,"
said Neil Veitch, global investment director at SVM Asset
Management.
Asian markets were mostly lower, as Hong Kong's Hang Seng fell
0.8% and South Korea's Kospi shed 0.9%.
Japan's Nikkei dropped 1.3%. The move came as the country
returned to solid growth in the April-June quarter, a trend
economists said was likely to continue on the back of higher wages
and consumer spending unless trade conflicts with the U.S.
worsen.
The world's third-largest economy expanded at an annualized pace
of 1.9% in the second quarter of 2018 after a revised 0.9%
contraction in the first quarter, which ended the longest stretch
of growth in 28 years.
Meanwhile, the Shanghai Composite Index edged slightly higher,
ending a week in which Chinese stocks have seesawed amid escalating
trade concerns between the U.S. and China.
Elsewhere, yields on 10-year U.S. Treasurys fell 2.896% from
2.935% Thursday. Yields fall as prices rise.
In commodities, Brent crude was down 0.1% to $72 a barrel and
gold was down 0.2% to $1,217.50 an ounce.
Mike Bird, Tom Fairless and Megumi Fujikawa contributed to this
article.
(END) Dow Jones Newswires
August 10, 2018 06:08 ET (10:08 GMT)
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