Turkish lira crisis: US threatens fresh sanctions, as minister rules out capital controls – as it happened
All the day's economic and financial news, including the latest on the Turkish currency crisis that has spooked investors
- Latest: US could hit Turkey with more sanctions
- Berat Albayrak has spoken to thousands of investors
- Finance minister pledges to fight inflation and support banks
- Albayrak: Won't need capital controls or the IMF
- Introduction: Turkish finance minister faces credibility test
7.00pm BST
Here's our news story on the Turkish currency crisis.
Related: Lira rallies as Turkey pledges spending cuts to avoid IMF bailout
6.57pm BST
Wall Street is on a tear today, with the Dow Jones up more than 400 points (or 1.6%) in afternoon trading.
Traders seem to be much more relaxed about Turkey and US-China trade wars than yesterday. Perhaps too relaxed, given we've only seen modest progress on both issues today....
#StupidStock Move of the Day! Can I give to whole market? Of course I can. It's my "award." Yes, fear about China-US trade spat & Turkey currency crisis may have been overdone. But market acting today like GW Bush putting up "Mission Accomplished" banner. No more worries? Really?
6.46pm BST
Ouch! President Trump also told his cabinet meeting that Turkey hasn't been a good friend, according to reports.
The United States and Turkey have exchanged tit-for-tat tariffs in Trump's attempt to persuade Turkish President Tayyip Erdogan to give up Brunson, who denies charges that he was involved in a coup attempt against Erdogan two years ago.
"They have not proven to be a good friend," Trump said of Turkey during the Cabinet meeting. "They have a great Christian pastor there. He's an innocent man." ....
6.22pm BST
Turkey's conference call with investors failed to really address one key issue -- whether interest rates will be raised sharply to support the lira (as some economists believe must happen).
Robert Ward of the Economist Intelligence Unit say this is a big concern:
Albayrak's plan to stabilise Turkey's economy invites scepticism. Fiscal policy to do heavy lifting via cuts. Little to say on interest rates. Thus Erdogan's dotty views on rate rises/inflation still prevail. CB independence/lack thereof thus still a key risk to stability.
6.05pm BST
The lira has pared some of its earlier gains, following Mnuchin's threat to roll out more sanctions on Turkey.
It's now trading at nearly 5.9 lira to the US dollar, compared with 5.7 earlier.
"We have put sanctions on several of their cabinet members," Mnuchin told a cabinet meeting. "We have more that we are planning to do if they don't release him quickly." https://t.co/YY9zMnW91P
5.57pm BST
NEWSFLASH: America has signalled it will impose more sanctions on Turkey, unless US pastor Andrew Brunson is released from house arrest.
The threat comes hot from the White House, where Donald Trump has been holding a cabinet meeting.
BREAKING: Treasury Secretary Mnuchin says the U.S. is prepared to hit Turkey with more sanctions. pic.twitter.com/CMsLBGK2iR
5.44pm BST
It's been a remarkable week for the lira.
After plunging in early trading on Monday, it's fought its way back as Ankara has clamped down on currency speculation, urged the public to help resist the 'economic war', and tried to reassure investors.
Turkey's lira is on quite a rebound, appreciating 17% in three days pic.twitter.com/UgQLsZCsjG
5.33pm BST
A sense of relief has swirled through most of Europe's stock markets today.
All the main indices have closer higher tonight, bar one -- Italian construction stocks declined in the aftermath of the Genoa bridge collapse tragedy.
Related: China to send delegation for US talks to avert trade war
After heavy falls for the miners in the previous session, today the miners were the top sectorial gainer as metal process rebounded.
News that China is sending a trade delegation to Washington for the first attempts at trade talks since the US levied tariffs on $50 billion of Chinese imports has boosted optimism that a deal between the two powers is still a possibility, even if a distant opportunity. Notably senior Chinese officials won't be in attendance, showing a level of caution from China over the ability of the two sides to reach a deal.
5.09pm BST
Turkey's pledge to strengthen its fiscal position (see earlier post) is likely to mean tough spending cuts.
Turkey has set out plans to cut spending to bolster the lira as it seeks to navigate a way out of the crisis that has hit the currency and shaken emerging markets.
In a much-anticipated conference call with 6,000 investors, Berat Albayrak, finance minister, indicated the country would largely use fiscal measures to slow down the economy and reduce a hefty current account deficit and inflation running at 16 per cent.
4.54pm BST
This chart shows how Turkey's external borrowing has risen sharply in the last few years, as a credit boom has driven growth:
4.39pm BST
Cristiana De Alessi of BNP Paribas has given Turkey's new finance minister some credit for his comments today, but warned that Turkey faces a struggle.
She cites Turkey's reliance on external funding (its corporate sector owes around $220bn in foreign debt, according to CNBC):
"The finance minister provided some comfort by acknowledging that rebalancing the economy is a priority through both fiscal and monetary policy and that capital controls aren't an option."
"The MTP (medium term programme) released in September will be key to see what concrete steps will be taken to turn this into sustained action. It will also provide a benchmark to measure the new government's progress.
4.14pm BST
Per Hammarlund, chief EM Strategist at Nordic bank SEB, fears that Turkey could be forced to seek help from the IMF -- despite Albayrak's pledges today.
He writes:
Turkish Finance Minister Berat Albayrak continues to reassure investors that Turkey will address its structural problems, but at this stage crisis measures, including sharply higher policy rates, a tightening of fiscal policy and support to troubled sectors such as construction, retail and banking will be key.
"In sum, the economy is set to slow down sharply. The Central Bank of the Republic of Turkey (CBRT) has been forced to hike interest rates sharply [earlier this year], which will have a dampening effect on credit growth. It will also increase default rates and the need for debt restructuring, hurting banks' asset quality.
"It was Albayrak's first investor call. In general, I found it successful as the rhetoric suggests that they are aware of the problems in Turkey's economy and reasonable solutions are being prepared. It's very valuable that they underlined the negative effects of inflation on the economy and the target of single digit inflation was emphasized."
"I also find the sustainable growth goal important. The importance of fiscal discipline was stressed. In a nutshell, it shows that problems of the economy can be discussed with investors and confidence can be restored.
Market much more impressed than I am. Always an uncomfortable feeling.
"Turkey has never implemented non-market based measures...such as capital controls, and are not in our agenda. Open market based economy principles will always be at the center of our macro framework"
That was a good thing to say
Turkish finance minister just ended the call by asking all of us to visit Turkey. Nice trick to get in some hard currency!
In all seriousness, Istanbul is incredible, and if you haven't been, you should go ASAP
3.45pm BST
The lira is continuing to strengthen, following Berat Albayrak's conference call.
It has now gained around 4.5% today, meaning one dollar is worth 5.7 lira, down from almost 6 lira to the dollar last night.
3.14pm BST
Heres are the key points from Berat Alkayrak's first major performance before international investors:
Albayrak messages on investor call: Tight fiscal policy, coordination of fiscal and monetary policy, fight against inflation without giving up on growth., no planned capital controls. Most striking line: "We don't expect fines on Halkbank" - latest on @Reuters screens
LIVE - Treasury and Finance Minister Berat Albayrak (in conference call with over 6,000 international investors): Turkey will come out of this volatility stronger, the Turkish banking sector is healthy and strong; we will not compromise on fiscal discipline pic.twitter.com/Y8sB3gDMLk
Turkish Treasury Minister Albayrak:
" No capital controls would be ever imposed
" No IMF stand-by deal instead will focus on FDI
" Don't expect U.S. fine against Halkbank
" Support and additional funding would be provided to banks if necessary
3.14pm BST
Thousands of investors had piled onto the conference call. That shows the level of interest in Turkey's predicament around the globe.
2.56pm BST
Albayrak ends the call by saying he's like to meet investors soon.
[Background: Some institutional investors have grumbled that Albayrak hasn't been willing to meet them and has been taking a 'bunker mentality' since becoming treasury and finance minister in July]
2.53pm BST
Earlier in the call, Berat Albayrak said he doesn't expect state-owned Turkish bank Halkbank to be fined by America for allegedly helping Iran evade U.S. sanctions.
Halkbank's shares have jumped by 3.6% on this news.
2.47pm BST
On US sanctions, Berat Albayrak says Turkey will turn to other parties - such as China and Germany - help it navigate the current situation.
2.38pm BST
Here's Reuters' first take on Albayrak's conference call (which is still going on):
Finance Minister Berat Albayrak said on Thursday Turkey won't hesitate to provide support to the banking sector, which was capable of managing current volatility, and there has not been major deposit flow from banks lately.
In a conference call with investors, Albayrak said Turkey had already taken measures to curb forex funding and corporate sare in a comfortable position to meet short-term liabilities.
2.37pm BST
Albayrak is now talking about the need to co-ordinate fiscal and monetary policy.
In other words, the government and the central bank need to work together to fight the crisis.
2.30pm BST
Here's Albayrak's take-home message for investors:
"We are experiencing unfavourable conditions, but we will overcome." -- Turkish Finance Minister Albayrak
(via @Reuters)
2.29pm BST
Newsflash: Berat Albayrak says Turkey doesn't have any plans to bring in capital controls [ie, restricting bank withdrawals and the movement of money in and out of the country].
It also isn't planning to turn to the International Monetary Fund, he tells investors.
2.27pm BST
On the fiscal side of things, Albayrak says Turkey wants to boost its primary budget surplus.
All ministries have been asked to contribute to an "ambitious savings programme".
2.25pm BST
Albayrak says that reducing inflation is Turkey's top priority; it wants inflation to be in 'single-digits' as soon as possible.
[Currently Turkish inflation is running at 15%]
2.23pm BST
More snaps from Bloomberg:
*ALBAYRAK TELLS INVESTORS #TURKEY FULLY RECOGNIZES CHALLENGES - BBG
*ALBAYRAK TELLS INVESTORS TURKEY BANK SECTOR HEALTHY, STRONG
*ALBAYRAK TELLS INVESTORS TURKEY DID BANKS STRESS TEST RECENTLY
*VOLATILITY IN TURKEY NOT TRIGGERED BY FUNDAMENTALS: ALBAYRAK
2.21pm BST
The crucial conference call between Turkey and thousands of investors is underway!
Finance minister Berat Albayrak began by telling the call that Turkey will emerge from the current period of volatility stronger.
Turkish Fin Minister presser starts:
TURKEY CENBANK RESERVES MORE THAN $90B
TURKEY BANKS' CAD AT PRUDENT LEVEL EVEN IN WORST CASE 16% CAPITAL ADEQUACY RATIO
2.14pm BST
Just in: Donald Trump's top economic advisor has hailed the strength of the US dollar - even though it's causing serious pain in emerging markets.
"There's a lot of unrest around the world. Money is flowing into the U.S.A. That's terrific.
"By the way, a strong dollar holds down commodity prices, gasoline prices are slipping, oil prices are slipping".
Our Economy is doing better than ever. Money is pouring into our cherished DOLLAR like rarely before, companies earnings are higher than ever, inflation is low & business optimism is higher than it has ever been. For the first time in many decades, we are protecting our workers!
1.38pm BST
Newsflash: President ErdoAan has spoken by phone to French president Emmanuel Macron.
The two leaders "emphasised the importance" of improving bilateral investment, and economic and trade relations, according to the Turkish side.
#BREAKING Erdogan, France's Macron vow to foster economic, trade ties: Turkish presidency pic.twitter.com/hmzLUIbqg3
1.19pm BST
This is why Turkey needs to persuade foreign banks to keep lending to its corporate sector:
This is a great display of how reliant #Turkey is on foreign capital. The stress there is far from over. pic.twitter.com/QqLWe5fJZs
12.47pm BST
If Turkey can't restore market confidence, it could become swept into a full-blown financial crisis that forces it to impose capital controls.
This would prevent citizens and businesses emptying their bank accounts, stopping a run on the banking sector.
"Full-blown capital controls that everybody is worried about I think have a pretty limited chance of success, partly because they have a big external funding requirement.
Capital controls in Turkey could spark emerging market contagion, Goldman Sachs analyst says https://t.co/vrUxwavOZK pic.twitter.com/uOGDMekznn
11.54am BST
Back in the UK, social media personalities who gush about their favourite products -- but don't reveal they've been paid -- have questions to answer.
The Competition and Markets Authority (CMA) fears that some "influencers" are breaching consumer protection law, which requires that any reward received for an endorsement is disclosed.
Business watchdog to investigate social media influencers https://t.co/jIpSyF3gmX
11.39am BST
Here's our news story on the lira's recovery today (it's still up 3% at 5.8 to the dollar)
Related: Turkish lira recovers as finance chief bids to calm investors
10.42am BST
Related: Business Today: sign up for a morning shot of financial news
10.29am BST
There's a calmer feel in the markets today, with Britain's FTSE 100 up 43 points or 0.6% at 7541.
This has prompted a rebound in the Chinese Renminbi from its recent lows while the continued recovery in the Turkish lira has alleviated short term concerns of a collapse in the currency.
Related: China to send delegation for US talks to avert trade war
10.17am BST
Meanwhile in the UK, retail sales have bounced back thanks to the heatwave (which seems to have bunked off today, alas) and the football World Cup.
retail sales rebound into July ("as people continued to enjoy the World Cup and the sunshine" - ONS). 3m/3m rate very strong, but likely to slow further into Q3 when effects of strong April / May wear off. pic.twitter.com/8wXUhWb2AE
10.04am BST
Turkey needs to make four changes to persuade the markets that it's serious about tackling its credit binge, argues Holger Schmieding of German bank Berenberg.
And, awkwardly for Berat Albayrak, that includes appointing a finance minister who isn't married to president ErdoAan's daughter. It also includes tightening government spending, and giving the Turkish central bank the freedom to raise interest rates (something ErdoAan is opposed to).
9.48am BST
The Financial Times agrees that Turkey's finance minister Albayrak faces a huge test when he speaks to investors on this afternoon's conference call.
Some worry that Mr Albayrak and his team are simply out of their depth, having been caught off-guard by an economic and political crisis just weeks into the job.
"I have concerns that they fully comprehend the root of this problem," said a person who has dealt with members of Mr Albayrak's team.
9.38am BST
Berat Albayrak's family connections make it harder for him to establish confidence with investors.
After all, it's possible that the best possible candidate to become finance minister is also the president's son-in-law. But it's not a great look.
Albayrak must convince jittery markets that Turkish monetary policy will be determined by economic reality - and an independent central bank - rather than the powerful family chief behind his meteoric rise.
Economists attributed the lira's modest recovery on Wednesday to central bank measures which squeezed lira liquidity, raising borrowing costs without hiking the benchmark interest rate.
9.06am BST
Berat Albayrak's rise to power has attracted comparisons to another well-connected son-in-law, Jared Kushner.
My colleague Martin Chulov explains how Albayrak has shimmied up the greasy pole:
Albayrak completed a master's of finance at New York's Pace University, before completing a PhD in Turkey. In 2006, two years after his marriage, he was appointed the chief executive of the energy and media conglomerate ialAk, a role that opened connections across the region. In 2015, Albayrak was named energy minister - the same year he became an MP. By later that year he had begun to consolidate political power, moving from one of the country's most influential businessmen to a figure at the heart of the power base - and unmistakably tied to his father-in-law.
He displayed a ruthless streak, eliminating perceived rivals within the ruling AKP party, such as Turkey's then prime minister, Ahmet DavutoAlu, and anyone perceived to be disloyal to ErdoAan.
Related: Berat Albayrak: the Jared Kushner of Turkey tackles its crisis
8.54am BST
The lira's rally suggests Turkey's attempt to repel speculators is paying off.
Yesterday, Turkish financial regulators imposed new restrictions on the country's banks, which effectively made it harder and more expensive to 'short', or bet against, the lira.
At what point are people going to start complaining about lira strength? pic.twitter.com/p5pWSLO5lS
8.23am BST
There are encouraging signs for Turkey in the financial markets today:
Turkish lira rallying strongly for third day in three. Unlike earlier in the week, signs of life in the bond market, rates about 50bps lower, still underwater for this week.
#Lira has gained close to another 2.5% so far today, now seems to be within reasonable touching distance of the start of crisis last Friday. I never thought it could recover so soon. Let's see what happens next. #usdtry #Erdogan
8.02am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Let's wait & see how the Investor Conference Call goes later today. Call actually will take place at 4pm local time (9am EDT.) Not out the realm of possibilities Trump Admin may try to steal Fin Min Albayrak's thunder with additional sanctions , as Brunson not released Wednesday.
Thursday's FT: Spooked investors push emerging market stocks into bear territory #tomorrowspaperstoday pic.twitter.com/Lt4OGweLeN
Continue reading...