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GLOBAL MARKETS-Turkey turmoil sends ripples across world stock markets, euro falls

Published 2018-08-10, 08:12 a/m
© Reuters.  GLOBAL MARKETS-Turkey turmoil sends ripples across world stock markets, euro falls
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* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

* Turkish lira plunged to record low

* FT reports ECB worried about European bank exposure to Turkey

* Bank shares fall

* Euro falls to lowest since July 2017

* Yen climbs, bond yields fall

By Ritvik Carvalho

LONDON, Aug 10 (Reuters) - A plunge in the Turkish lira rocked global equities and emerging markets on Friday and fears of more turmoil sent investors scurrying for safety in assets like the yen and U.S. government bonds.

The lira fell as much as 14 percent against the dollar, chalking up its worst day since Turkey's financial crisis of 2001. It came on the back of a deepening rift with the United States, worries about its own economy and lack of action from policymakers.

The currency is now down more than 36 percent this year, and 17 percent this month alone, fanning worries about a full-blown economic crisis. .DXY one-week implied volatility spiked to a record high of over 49 TRYSWO=FN while the one- and three-month equivalents both surged to their highest since late 2008 TRY1MO=FN , TRY3MO=FN . shares across the continent fell and the euro slipped to its lowest since July 2017 as the Financial Times quoted sources as saying the European Central Bank was concerned about European lenders' exposure to Turkey. have a number of Spanish banks which effectively have very large stakes in banks operating in Turkey. If Turkey is going through economic and political turmoil - which it is - we could see non-performing loans increase there," said David Madden, markets analyst at CMC Markets in London.

"Many of these European banks have their own non-performing loans and liquidity issues to deal with themselves. Now all of a sudden a currency crisis in Turkey could trigger another dimension to their own financial problems."

Shares in France's BNP Paribas BNPP.PA , Italy's UniCredit CRDI.MI and Spain's BBVA BBVA.MC , the banks seen as most exposed to Turkey, fell over 4 percent.

That took euro zone bank shares down 3 percent .SX7E while the pan-European STOXX 600 index .STOXX fell 1 percent. .EU

PLAY IT SAFE

The MSCI All-Country World index .MIWD00000PUS , which tracks shares in 47 countries, was also down over 0.6 percent on the day, having erased all its gains for the week. Wall Street was set for a weak open. .N

As investors piled into "safe" bonds, German yields hit three-week lows and yields on U.S. 10-year Treasuries fell to 2.8967 percent. US10YT=RR

Investors are now awaiting the release of U.S. consumer price inflation data for July for clues on the interest rate outlook and to gauge if new import tariffs were starting to have an impact. The data is expected to show inflation increased 0.2 percent, after rising 0.1 percent in June.

The Australian dollar AUD= , often viewed as a gauge of global risk appetite due to its reliance on commodities, was the biggest faller among developed currencies, at one point down 1 percent on the day. Going in the opposite direction was the safe-haven Japanese yen, which hit a one-month high against the dollar. JPY=

The dollar index .DXY , which measures the greenback's strength against a group of six major currencies, breached 96, taking it to its highest level since July 2017. It was last up half a percent at 95.986.

Adding to emerging market currency woes was the Russian rouble, RUBUTSTN=MCX which weakened to 67.12 to the dollar. Overnight it had retreated to its lowest since November 2016 on threats of new U.S. sanctions, weakening beyond the psychologically important 65-per-dollar threshold. EM currencies have held their ground against the dollar, having generally been weakening previously," said analysts at Capital Economics.

"In most cases though, we suspect that this resilience will prove temporary," they said, highlighting expectations of rising U.S. interest rates and worries over growing U.S. protectionism.

In commodities, U.S. crude oil CLc1 rose half a percent to $67.16 a barrel, while Brent crude LCOc1 was 0.6 percent stronger at $72.47 per barrel.

Spot gold XAU= rose 0.1 percent to $1,213 per ounce. GOL/

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