Fallout from the Turkish lira's meltdown is starting to spread to markets around the world

Simona Granati – Corbis/Corbis via Getty ImagesTurkish President Recep Tayyip Erdogan, pictured in Rome last year.
  • Global markets are under pressure following the plunge in the Turkish lira late last week.
  • The lira’s fall continued in Asian trade on Monday — it plunged as much as 10% when markets opened.
  • The weakness is starting to spread to other emerging market currencies, with the South African rand crashing by as much as 10% against the greenback.
  • Stock markets around Asia are lower, US stock futures are down, and high quality bonds are rallying.
  • You can follow the lira price live on Markets Insider.

Global markets are selling off following last Friday’s collapse of the Turkish lira.

China’s benchmark Shanghai Composite index immediately fell by more than 1% after the opening bell at 11:30am AEST — a fall matched by similar declines in Hong Kong and South Korea.

Stocks in Shanghai were down almost 2% but have climbed off their intra-day lows since markets reopened after the lunch break.

Shares in Japan are also down more than 1.6%, weighed down by a stronger yen as money moves to safe-haven assets.

US stock futures are also lower. Dow futures were down by 0.47%, or around 118 points, while futures for the broader S&P500 were down 0.38%.

Turkey’s currency saw some wild moves in early Monday trade, selling off 10% at the open before a rally and another fall. Markets remain unclear on any response from the government in Turkey — where President Recep Tayyip Erdogan has been widening his control over economic policy — following Friday’s events.

Here’s the chart showing the US dollar against the lira over the past week (a higher number indicates a weaker lira)

Markets Insider

The lira’s collapse is one factor contributing to renewed US dollar strength that is starting to put pressure on emerging markets more broadly.

The South African rand fell by as much as 10% to two-year low against the greenback, as weakness in the lira spread to other emerging market currencies.

The rand steadied in afternoon trade, and a short time ago was trading around 2.5% lower against the USD.

A short time ago, Indonesia’s 10-year bond yield had risen to 7.89%, just shy of a one-month high. Reuters reported that an official from Indonesia’s central bank said it would be “intervening” on Indonesia’s USD exchange rate.

In addition, stocks in Jakarta fell by more than 3% into the lunch break. Indonesia’s IDX exchange will reopen at 4:30pm AEST.

The US dollar was around 0.9% higher against the Indonesian rupia, and had gained ground against the Indian rupee and Argentinian peso. The dollar was also more than 1.3% stronger against the Mexican peso.

Australian stocks have climbed off their intra-day lows but are still down by around 0.4% for the session. The AUD remains under pressure and is trading near its lowest level against the greenback since the end of 2016.

US stock futures are around 0.7% lower for both the Dow and the S&P500.

Here’s a snapshot of Asian markets in afternoon trade (3:30pm AEST):

  • Shanghai Composite 2,758.59 , -1.31%
  • SSE50 2,455.37 , -1.91%
  • Shenzhen Composite 1,498.87 , -1.13%
  • CSI300 3,355.24 , -1.46%
  • CSI500 4,985.97 , -0.89%
  • Hang Seng 28,010.09 , -1.54%
  • USD/CNY 6.5973 , 0.43%
  • USD/CNH 6.8843 , 0.27%

The major concern around the lira is that its weakness will start to affect European banks. The eurozone’s chief financial watchdog has become worried about the exposure of major European lenders — mainly Spanish and French banks — to Turkish debt.

The US dollar has been strengthening against most currencies as the American economy has strengthened, allowing the US Federal Reserve to start lifting interest rates.

Back in June, the governor of the Reserve Bank of India highlighted the risks faced by emerging markets as the Fed tightens its policy stance.

However, the current the backdrop to the lira’s fall is a continuing deterioration in relations between Ankara and Washington.

The Trump administration announced further tariffs on Turkish imports on Friday, and Turkish diplomats recently failed to stop the US from imposing sanctions against two senior ministers.

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