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LONDON (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.
Lira one-week implied volatility spiked to a record high of over 49 while the one- and three-month equivalents both surged to their highest since late 2008.
Bank 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.
“You 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, Italy’s UniCredit and Spain’s BBVA, the banks seen as most exposed to Turkey, fell over 4 percent.
That took euro zone bank shares down 3 percent while the pan-European STOXX 600 index fell 1 percent.
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.
Lira one-week implied volatility spiked to a record high of over 49 while the one- and three-month equivalents both surged to their highest since late 2008.
Bank 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.
“You 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, Italy’s UniCredit and Spain’s BBVA, the banks seen as most exposed to Turkey, fell over 4 percent.
That took euro zone bank shares down 3 percent while the pan-European STOXX 600 index fell 1 percent.