Turkish lira weakens after US threatens more sanctions – as it happened

Turkish currency falls 5% at the end of a tumultuous week; European stocks drop after Turkish court rejects US pastor's appeal for release

2.46pm BST

The Turkish lira has taken another battering today, falling 5% to 6.1 to the dollar (it lost nearly 7% at one stage) and the Turkish stock market is down 1%.

It has been a tumultuous week that saw the lira go into meltdown on Monday when it hit a record low of 7.2 against the dollar and the panic spread to other emerging markets. A pledge by Turkey's central bank to provide liquidity to banks and other measures, a pledge from Qatar to provide $15bn in loans to Turkey, and reassuring words from the finance minister yesterday helped calm nerves.

1.41pm BST

Even so, Schmieding reckons that the impact on the eurozone will be very limited. He says:

Exports: The eurozone earns 0.57% of its GDP by selling goods to Turkey. Even a 20% fall in exports to Turkey would not subtract more than 0.1ppt from annual Eurozone GDP growth. As global demand remains healthy, eurozone firms could likely contain the damage further by switching to other markets for some of these affected goods with only modest reductions in their selling prices.

1.39pm BST

Holger Schmieding, economist at Germany's Berenberg, says the bank has lowered its year-end forecasts for the euro to $1.17 from $1.21, due to the Turkey crisis.

Turkey is no small fry. It contributes 1% to global GDP. Beyond the obvious geopolitical concerns, a major Turkish recession would pose a significant challenge for financial markets and for other economies.

Remembering the tremors which Turkey's smaller neighbour Greece once sent through European and global markets, investors are understandably nervous. Adding to concerns about Italy's 2019 budget and Brexit uncertainty, the noise from Turkey could delay the rebound in eurozone business confidence and growth for a few more months despite the easing of US-EU trade tensions.

1.24pm BST

Over in the US, Donald Trump has revealed that he has asked the Securities and Exchange Commission to look into whether American companies should report earnings on a half-year, rather than a quarterly basis.

In speaking with some of the world's top business leaders I asked what it is that would make business (jobs) even better in the U.S. "Stop quarterly reporting & go to a six month system," said one. That would allow greater flexibility & save money. I have asked the SEC to study!

1.21pm BST

The Turkish lira is still down 5.4% on the day, with one dollar buying 6.14 lira. The Turkish stock market has turned positive, however, gaining 0.6%.

Other emerging markets currencies are also under pressure, with the Mexian peso down 0.7% and the South African rand losing 0.9%.

1.18pm BST

European stock markets have turned negative, after a Turkish court rejected the US pastor Andrew Brunson's appeal for release.

11.55am BST

Michael Hewson, chief market analyst at CMC Markets UK, has tweeted:

If talk of an S&P downgrade of Turkey priced in - surely Turkish banks downgrade will follow soon after if downgrade occurs $TRY

A $15bn rescue package from Qatar, and a limited package of exchange controls in limiting banks' ability to take out short positions has bought the Turkish lira some brief respite in the last few days, but let's not kid ourselves here, unless president Erdogan takes steps to restore confidence in his stewardship of the Turkish economy then we could well see the lira come under further pressure.

The US doesn't appear in any mood to relieve the pressure on the Turkish government in securing the release of their pastor, if recent comments from vice President Mike Pence, and Treasury secretary Steve Mnuchin are any guide. President Erdogan may be able to defray some of the risks to the Turkish economy by trying to improving his ties with Germany and Russia, but if the US really wanted to turn the screws it's unlikely that these countries would be able to do much about it.

11.46am BST

One currency trader told Reuters that the weakness of the lira was driven by the "new US sanctions threat and the S&P decision, with position-closing in markets ahead of the public holiday".

Standard & Poor's is expected to downgrade Turkey's sovereign credit rating after markets close today. Next week, the Turkish markets will be closed for Eid al-Adha, the Festival of Sacrifice, from Tuesday until Friday.

11.38am BST

William Jackson of Capital Economics said:

There has been no sign that the central bank will be allowed to raise interest rates significantly and return rates to positive territory. Similarly, there has been no improvement in relations with the US, and additional sanctions may be on the horizon.

11.37am BST

The Turkish lira is under pressure again, falling nearly 7% against the dollar at one stage to 6.24. It is now trading at 6.04, down 4% on the day.

The currency has lost almost 40% against the dollar this year, hit by a diplomatic row with the US and and investor concerns about the country's financial policies and its foreign-currency debts. The independence of the Turkish central bank and its finance minister have been called into question. The central bank is refusing to raise interest rates to curb inflation, with Turkish president ErdoAan opposed to rate hikes.

11.28am BST

After nearly nine years of financial crises and austerity, Greece is about to come out of its third bailout programme - on Monday, at midnight. Greece borrowed more than a288bn from international creditors in the biggest bailout in history.

Greece's finance minister, Euclid Tsakalotos, said earlier this week that Turkey's woes would not affect Greece's exit from the bailout. He said:

A clean exit is based on the following: the Eurogroup agreement on Greece's debt management, and the cash buffer the government has created which guarantees that the public sector's funding needs will be met in the next two or three years.

Therefore, the Greek government's plans are not affected by short-term turmoil in the markets. On 21 August, Greece is turning the page, and this is final.

Related: Greek bailout drama 'in last throes' but the hardship is not over yet

11.22am BST

According to the Deutsche Bank economist Oliver Harvey, the UK, Germany and the US have lent the most to Turkey, says Ed Conway, economics editor at the Times. We are trying to get hold of the note...

Contrary to what you might have read elsewhere, it's not Spain/Italy who are most exposed to financial fallout in Turkey but the UK. Chart from Oliver Harvey at DB. More on this in my @thetimes column today: https://t.co/dgqwRyBHxg pic.twitter.com/ep3z2GqsnE

11.12am BST

Turkish president ErdoAan's administration has been adamant that it won't have to seek a bailout from the International Monetary Fund. Qatar pledged about $15bn in loans on Wednesday but provided few details.

10.57am BST

Turkey and its companies face repayments of nearly $3.8bn on foreign currency bonds in October, according to Socii(C)ti(C) Gi(C)ni(C)rale.

The country's currency woes has sparked worries about Turkey's external debts and the ability of its firms and banks to repay them. For companies, the cost of servicing their foreign borrowings has risen by a quarter in the past two months, due to the sharp fall in the lira.

Turkey's external financing requirements are large (IMF estimates around $250bn per year). It has the highest foreign-exchange-denominated debt in emerging markets and short-term external debt of $180bn and total external debt of $460bn.

Principal and interest payments should be close watched to year-end - it is 25% more costly for the corporate sector to repay their obligations compared to June given FX depreciation.

How will Turkey roll over existing debt? Refinancing via the bond market could be challenging.

10.13am BST

Inflation in the eurozone has been confirmed at 2.1% in July - above the European Central Bank's target of 2%. The annual rate rose from 2% in June, pushed up by higher energy costs, according to the European Union's statistics office Eurostat.

This means the ECB can push ahead with plans to end its bond purchasing programme by the end of the year, and possibly raise interest rates next year.

9.23am BST

Mohamed El-Erian, chief economic adviser at Allianz, the parent of Pimco where he served as chief executive, and the former chairman of Barack Obama's Global Development Council, writes: Can Turkey rewrite the rulebook for crises in emerging markets? By rejecting the conventional approach, ErdoAan risks greater trouble - and not just for Turkey.

Whether by accident or design, Turkey is trying to rewrite the chapter on crisis management in the emerging-market playbook. Rather than opting for interest-rate hikes and an external funding anchor to support domestic policy adjustments, the government has adopted a mix of less direct and more partial measures - and this at a time when Turkey is in the midst of an escalating tariff tit-for-tat with the US, as well as operating in a more fluid global economy. How all this plays out is important not only for Turkey, but also for other emerging economies that already have had to cope with waves of financial contagion.

The initial phases of Turkey's crisis were a replay of past emerging-market currency crises. A mix of domestic and external events - an over-stretched credit-led growth strategy; concerns about the central bank's policy autonomy and effectiveness; and a less hospitable global liquidity environment, owing in part to rising US interest rates - destabilised the foreign-exchange market.

Related: Can Turkey rewrite the rulebook for crises in emerging markets?

9.05am BST

The euro is rising for a second day, heading towards $1.14, after coming under pressure on concerns over the exposure of major European banks to Turkey, after the lira went into meltdown.

8.45am BST

There is a sense of relief in financial markets today, following the news that Beijing will resume trade talks with Washington next week, although at a lower level than previously. It is the first round of trade talks since June and offers some hope to those worried about the impact of the tit-for-tat trade war on the world economy.

Lukman Otunuga, research analyst at FXTM, said:

Although the chances of a breakthrough deal from lower-level talks are seen as unlikely, the meeting could be a positive step towards easing trade tensions between the world's two largest economies.

8.33am BST

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8.31am BST

It's pretty quiet on the corporate front as well. Royal Bank of Scotland has announced that its deputy chief financial officer Katie Murray will stand in as interim finance chief after Ewen Stevenson leaves on 30 September to go to HSBC on a 10.6m deal.

A search for a successor for Stevenson is under way, RBS said.

8.12am BST

The FTSE 100 index in London has opened flat, trading down 2.5 points at 7553.84. Germany's Dax is also flat, France's CAC is up 0.1%, Spain's Ibex has gained 0.2% and Italy's FTSE MiB has slipped 0.1%.

8.04am BST

Viraj Patel, foreign exchange strategist at ING, expects the lira to "tread water" today - with US-Turkey relations on a knife-edge as the White House said it may increase sanctions. Next week's market holiday should offer some respite - the Istanbul stock exchange will be closed from Tuesday until Friday for Eid al-Adha.

Patel adds:

All the noise from Turkey's finance minister Albayrak appeared to be on the right lines in terms of reassuring global investors that Ankara remains credibly committed to addressing the country's inflation problem - and in the status quo free-market spirit. In effect, Turkish policymakers have bought themselves a bit of time - at least until early September, when markets will be expecting to see some sort of joint fiscal and monetary tightening in the Medium-Term Economic Plan.

While we did see Turkey's sovereign CDS rally following the finance minister's investor call, the lira failed to push on much further beyond 5.75 - as markets had largely priced in a conciliatory outcome. S&P are due to downgrade Turkey's sovereign credit rating today - but again this is in the price of the currency.

7.51am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The Turkish lira has become volatile again at the end of a tumultuous week, after the United States warned of more sanctions against Turkey. The embattled currency weakened in early London trading, with one dollar buying 5.86 lira, but has just recovered to 5.8, up 0.26%. On Monday the lira hit a record low of 7.2, dragging down other emerging markets currencies.

Turkey has taken advantage of the United States for many years. They are now holding our wonderful Christian Pastor, who I must now ask to represent our Country as a great patriot hostage. We will pay nothing for the release of an innocent man, but we are cutting back on Turkey!