US stocks fell and the dollar rallied as the economic crisis in Turkey continued to rattle global markets. Developing-nation currencies slumped with crude oil.
The S&P 500 Index reversed early gains and dropped to a two-week low in thin trading. The dollar rallied to its highest since 2017, while Turkey’s lira sank for a fourth day to a fresh record. Emerging-market equities tumbled more than 2 per cent, and South Africa’s rand touched the lowest since June 2016. European banks dragged down stocks in the region. Crude slid below $66 a barrel and gold hit to the lowest since January 2017.
The pain spread across emerging-market assets and the South African rand hit the lowest since June 2016. Turkey central bank moves to boost liquidity provided little relief.
Amid the tumult the greenback rose to the strongest in a year and the euro weakened. Treasuries advanced and Italian bonds led a slump for European peripheral debt. Gold dropped below $1,200 an ounce.
The lira’s plunge and subsequent sell-off in Turkey is giving investors an unwelcome reminder of past crises in emerging markets, rattling nerves worldwide and leaving traders speculating on how bad contagion can get.
Tourists find silver lining in lira crash
Visitors to Turkey flocked to its high-end shops to snap up bargains on Monday, their purchasing power buoyed by a currency crisis as the country's lira sank to a record low beyond seven per dollar.Barely moving lines of mainly Arab tourists snaked outside the Chanel and Louis Vuitton stores in Nisantasi, an upscale Istanbul neighbourhood, waiting to reap the benefits of a meltdown that saw the currency lose 18 per cent on Friday alone. President Tayyip Erdogan urged Turks to extend their hospitality to tourists, who were bringing dollars at a critical time. "You are already very hospitable but keep that up and extend it. Because at a time when some people are taking out dollars, they are bringing it to you," he told a crowd of supporters. He has repeatedly called on Turks to sell their dollars to shore the local currency up. Reuters
Turkey’s central bank will meet banks’ lira liquidity needs at a higher cost than its benchmark policy rate, four bankers with knowledge of the matter said on Monday — a possible step towards tightening monetary policy using an interest rate corridor rather than a rate hike. The central bank was ready to provide lira liquidity to banks if needed at an overnight rate of 19.25 per cent — 150 basis points higher than the weekly repo rate — bankers told Reuters after the bank did not hold its regular repo auction on Monday. The bank decided not to fund at that rate due to unhealthy price formations and excessive fluctuations in the market and it was unlikely to open its regular repo auction in the coming days until such movements in the market eased, bankers said.Reuters