Stocks Decline As The Turkish Currency Drops To A New Record Low

On Monday, a significant earthquake added to the pressures from a strong currency, geopolitical threats, and unexpected inflation readings outside of the country, causing the lira to drop to a new record low and the stock markets to crash.

Early in trading, the lira fell to 18.85 before recovering most of its losses. The main index for the country’s stocks fell as high as 4.6%. At the same time, banks lost above 5%, and paired losses with key indices by about 2.5%.

According to Piotr Matys, senior FX analyst at In Touch Capital Markets, “the terrible events with the southern region of Turkey being hit by a big earthquake is source of more worry ahead of the vital elections that will probably be place in May.”

A significant dollar gain on Friday following good U.S. jobs data hurt currencies and stocks around the developing world. This put pressure on emerging markets more broadly and raised the possibility that the Fed would continue to be hawkish. The Turkish CPI figure from last week came as a bit of a shock, re-igniting volatility in USD-TRY that had otherwise been noticeably absent in recent months.

Turkish lira drops further

On Monday, China’s equities declined as rising Sino-U.S. tensions dampened investor morale. Meanwhile, the Turkish lira reached a new record low as the U.S. jobs report reignited concerns about future Fed rate hikes. President Tayyip Erdogan wants the Turkish central bank to lower interest rates. However, Piotr Matys, said U.S. payrolls indicated the Fed was likely to continue in tightening mode for longer than markets presently predict.

Other stocks and currencies

As fears of further rate hikes in the U.S. increased the value of the dollar, the MSCI index for emerging market currencies declined 0.8%. Meanwhile, the equities index plummeted 2.2%, heading for their worst daily performance in almost 3.5 months. Hong Kong’s Hang Seng Index fell 2% as China’s blue chips ended 1.3% lower as the market for Chinese stocks closed significantly lower.

The balloon, according to Swissquote Bank senior market analyst Ipek Ozkardeskaya, was “a U-turn moment in the recently strengthening relations between the U.S. and China. She claimed that the risk of an escalation was increasing, which would hurt the Chinese markets’ still-fragile sentiment.

With attention focused on the Investing in African Mining Indaba conference later in the day, the South African rand lost 0.3% of its value against the dollar.

BONUS VIDEO: Weekly news summary from the markets

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