Turkish stocks tumble as crackdown on lira speculation spooks markets - as it happened
Cost of borrowing lira overnight surges to 1,000% as Ankara tries to shore up the currency
- Lira borrowing costs soar amid crackdown
- Currency crunch designed to prevent lira falling
- Foreign investors blocked from shorting lira
Earlier:
- UK retail sales fell in March
- Draghi: Trade war has hurt euro companies
- Introduction: New Zealand surprises with rate cut hint
9.59pm GMT
That's all for today. Thanks for reading and commenting. GW
9.12pm GMT
Bloomberg is reporting that Turkey's crackdown on speculation is quite unprecedented, and could undermine confidence in the country.
Investors dumped Turkish bonds and stocks on Wednesday after the nation orchestrated a currency crunch to prevent the lira from sliding days before an election that will test support for President Recep Tayyip Erdogan's rule.
The cost of borrowing liras overnight on the offshore swap market soared past 1,000 percent at one point on Wednesday because local banks are under pressure not to provide liquidity to foreign fund managers who want to bet against the lira. A government official said the measures are temporary.
7.42pm GMT
Here's our news story on the Turkish currency ructions:
Related: Turmoil in Turkey's financial markets after currency crackdown
7.41pm GMT
Our economics editor, Larry Elliott, fears Turkey's crackdown on currency speculators could hurt the global economy, perhaps badly.....
The assumption in the financial markets is that Turkey is a one-off and that there will be no ripple effects. That, though, is what the markets always say.
But the global economy is slowing, central banks have shelved plans to raise interest rates, investors are prepared to accept negative yields for the security of holding German bonds and the yield on a 10-year US bond is below that on a three-month bond - in the past a signal of a recession in the offing. Sometimes it only takes a spark and Turkey could easily provide it.
Related: Turkey may be the spark that lights a fire in the world economy | Larry Elliott
6.05pm GMT
Will Slaughter, an asset manager at Northwest Passage Capital Advisors, has written a very useful twitter threat about the events in Turkey today:
As usual in these situations, there is a pervasive lack of understanding by headline writers about what is happening in Turkey. The current mess hurts mainly if you have borrowed lira ST in the offshore market to fund other TRY fixed income positions & now need to roll funding /1
If that situation describes you, you are having a horrible week. If that situation does not describe you, you are mostly an amused bystander. /2
This is a political stunt to stop short term FX depreciation pressure by making short offshore lira borrowing (and thus TRY hedging or speculation) prohibitively expensive. It has little to do with sovereign solvency or even the stability of the domestic banking system. /3
In essence, Erdogan is crucifying the offshore TRY money markets (mainly populated by hedge funds and/or dedicated EMFX funds) to buy some short term currency stability that will certainly be unwound in a few days or weeks. /4
It is probably stupid to destroy the offshore money market infrastructure for this purpose (given that many participants are ultimately a stable source of finance for Turkey), but this is hardly the first dumb, counterproductive thing Erdo has done in the financial sphere. /5
5.19pm GMT
Capital Economics analysts suspect Turkey has been intervening to support the lira today:
In Emerging Europe, Turkey's financial markets came under renewed stress on Wednesday....
The lira was down by 2% against the dollar, although there appeared to be heavy intervention (probably by state banks) to limit the fall.
4.55pm GMT
CNBC says Turkey is struggling to defend its currency ahead of Sunday's elections, forcing Ankara to restrict access to the lira.
The slide in Turkey's equity market came as the government directed the country's banks to withhold lira liquidity from the offshore swap market in an attempt to keep the lira from falling sharply.
This sent the overnight Turkish swap rate to 1,200 percent, by far the highest ever, according to Reuters.
Turkish stocks dive and key interest rate hits 1,200% https://t.co/HxzliAc7i6
4.53pm GMT
The drama at the Istanbul stock market has not been matched in Europe, where trading has ended with a whimper.
In London, the FTSE 100 just closed 2 points lower at 7194. Germany's DAX closed flat, while the French CAC shed 0.1%.
4.52pm GMT
The pound is nudging higher tonight, as MPs prepare to hold a series of indicative votes to try to break the Brexit deadlock.
ING Bank have pulled together a handy checklist of some of the options:
4.29pm GMT
Over in Germany, chipmaker Infineon has spooked investors with a profits warning.
The company slashed its sales outlook for 2019, blaming the weaker global economy and particularly the slowdown in China.
"A number of end-markets continue to be sluggish.
In particular, the trend of declining vehicle sales in China has accelerated in February, causing dealer inventories to increase sharply."
4.05pm GMT
The head of Turkey's banking association has weighed in, denying that domestic banks are deliberately withholding lira from foreign rivals.
Instead, he insists, Turkish banks are keen to get their hands on lira themselves, thanks to the current currency squeeze.
Reports that the Turkish lira's swap rates are surging due to Turkish banks withholding lira liquidity from foreign banks are not true, the head of Turkey's banking association told Reuters on Wednesday.
Earlier on Wednesday, sources told Reuters that Turkey would keep directing its banks to withhold lira liquidity from a key foreign market at least until after local elections on Sunday.
3.34pm GMT
Newsflash: Turkey's stock market has suffered its biggest one-day fall since the summer of 2016.
The BIST 100, which tracks Turkey's 100 largest companies, shed 5,544 points to close at 91,833 points.
#Turkey's BIST 100 crashes 5.7%, biggest drop since Jul2016. pic.twitter.com/PwYgCEIVUY
*TURKEY'S BIST 100 ENDS DOWN 5.7%, BIGGEST DROP SINCE JULY 2016 https://t.co/RqvUVSCk5s
2.43pm GMT
The currency crunch created by Ankara to prop up the lira is intensifying.
The lira overnight swap rate has now jumped again, to 1,200%, says Reuters, double the (already alarming) level seen early this morning.
Turkish Offshore Overnight Rate watch: screen 600%, heard 750% traded.
2.14pm GMT
Marc-Andri(C) Fongern of MAF Global Forex has a prediction:
Turkey | TRY : The central bank (CBRT) will likely cut interest rates after the elections (we see the first cut in H2-2019) on softening inflation and a more benign global backdrop. cc. @TD_Canada #Turkey #USDTRY #Lira #FX cc. @graemewearden
2.12pm GMT
International banks have been hurt by President ErdoAan's clampdown on speculation, says Bloomberg:
Turkey further roiled markets by preventing foreign banks from accessing the liras they need to close out their swap positions. That's made it almost impossible for bankers to short the lira or exit carry trades, and forced the overnight lira rate up to about 1,000% from 23%.
Some foreign banks were unable to meet their obligations at the close of trading on Tuesday, forcing the central bank to extend hours for transferring funds in Turkey to 9 p.m., according to a senior Turkish official, who spoke on condition of anonymity.
2.05pm GMT
As you can see, the Turkish lira has been extremely volatile today, but it's still stronger against the dollar than on Friday.
1.55pm GMT
Brad Bechtel of investment bank Jefferies blames Turkish president ErdoAan for the currency market panic.
ErdoAan hit the campaign trail last week, ahead of local elections this Sunday.
The US dollar/Turkish lira spot rate had kicked off at the end of the week last week on the back of Erdogan's thrust back into the limelight as he campaigns for local elections. Anytime he gets back on the mic the currency tends to kick off and we've had a 7% round trip the last 3 days in spot.
Expect the currency to remain volatile throughout this election cycle as the market will take the sentiment in the local elections to be a vote of confidence on Erdogan himself. Also the longer he keeps talking the more we are likely to see these extreme moves.
1.23pm GMT
Here's a good chart showing the surge in the overnight lira swap market:
Cost to borrow Turkish liras overnight more than triples in a sign of how money markets have seized up after an apparent bid to stymie foreign short sellers https://t.co/27HDnVkpuk pic.twitter.com/sXlHKZ4CXD
1.17pm GMT
If you can't sell the Turkish Lira, sell Turkish stocks! #Turkey stock market down almost 7% during the last 2 days as currency liquidity evaporates. pic.twitter.com/oiDKFoDnSt
1.07pm GMT
The Financial Times says Turkey is determined to support the lira, to prevent a repeat of last year's currency crisis.
Here's their take on today's market drama:
The offshore overnight swap rate, the cost to investors of exchanging foreign currency for lira over a set period, soared to 700%, after hitting 325%, the highest level since 2001, in the previous session.
The rising cost highlights what some analysts say is an attempt by Turkey's government to arrest a decline in the lira, after the currency on Friday faced its heaviest plunge since the economic crisis during the summer of 2018. It rose both on Monday and Tuesday this week, but pulled back by more than 1 per cent as London dealings got under way on Wednesday.
Crackdown on short selling roils Turkish money markets https://t.co/tPc88MNdZu
1.05pm GMT
Ranko Berich of Monex Europe believes Turkey's efforts to prevent currency speculation may backfire badly:
Absolutely astounding stuff. Nuking short term liquidity makes it impossible to short lira, but gives precisely no reason to buy it. Makes the root problem which is political risk and monetary credibility much worse. Astounding self harm
12.57pm GMT
Bloomberg's Fercan Yalinkilic points out that Turkish government bonds are also weakening, pushing up the yield (interest rate) on the debt.
That's another indication that the markets are getting jittery about the impact of Ankara's speculation crackdown on the economy.
#Turkey 2 and 5 year yield hits 2019 highs
2-year yield rises to 20.44%, 5 year rises to daily high of 18.75%
* corrects previous 2y yield. pic.twitter.com/KS8wDH4XoF
#Turkey 10 year yield also jumps albeit a shallow volume. pic.twitter.com/7dRkKDXIkt
12.55pm GMT
*TURKISH LIRA OVERNIGHT SWAP RATE RISES TO 1,000% ...The government is intervening too much. cc. @TD_Canada #Turkey #USDTRY #Lira #FX
12.47pm GMT
Stocks are plunging in Turkey today as the country's currency crisis threatens to explode again.
Overnight swap implied yield hit 1000%#Turkey stocks are taking a nosedive of 4.4% as foreigners starved for #lira are unloading.
* Banks down 6%
* #Lira down to 5.4562 per $ pic.twitter.com/NxKgbDYctU
11.56am GMT
The CBI splits UK retail into 13 subsectors -- five reported falling sales this month, while the rest are flat.
Grocers have been the biggest positive driver of headline sales growth in the past two months, however sales in the sub-sector were flat on a year ago in March, pulling total retail sales into the red.
The biggest drivers of this month's fall in sales was 'other normal goods', followed by 'recreational goods' and 'hardware & DIY'
11.51am GMT
This chart shows how March's UK retail sales were rather weaker than retailers expected (and they'd have known that Easter was late tis year)
11.35am GMT
Retail suppliers also told the CBI that orders are down this month.
11.27am GMT
Newsflash: UK retail sales are falling at the fastest pace in 17 months, which may intensify concerns that Brexit is spooking consumers.
That's according to the CBI, which represents Britain's bosses.
"Even accounting for Easter timing, the High Street's poor run continues. While real wage growth is picking up, consumer confidence has been hit by escalating uncertainty over Brexit and concern over the economy's future.
"The pain currently being felt on the High Street is yet another reason why it is so vitally important politicians agree a deal in Parliament that is acceptable to the EU and protects our economy. No-deal must be averted at all costs."
BREAKING: retail woes intensify in March, according to CBI
The much watched - Distributive Trades Survey - says we've had the fastest contraction in 17 months. Economists had been expecting a positive number
We've now had 4 months in a row with no sales growth #brexit pic.twitter.com/p0AlyNLDFd
10.52am GMT
Newsflash: Germany has sold 10-year government debt at a negative yield, for the first time since 2016.
That means investors have paid slightly more than the face value of the bond, meaning they'll make a small loss if they hold it until it matures in 2029.
#GERMANY SELLS BUNDS WITH NEGATIVE YIELD, FIRST TIME SINCE 2016 - BBG
*GERMAN GOVT BONDS WEIGHTED AVG PRICE 103.00 ; AVG YIELD -0.05%
Someone just got the ECB's message. pic.twitter.com/IZEAJr3Oeg
10.20am GMT
European stock markets have dipped this morning, as investors get to gips with the latest pessimistic noises from central bankers.
New Zealand's surprise move towards an interest rate cut, and Mario Draghi's less surprising concern about the eurozone economy, has dampened the mood.
Global equities traded mixed overnight as investors deal with some disappointing economic signals this month, along with a plethora of central banks decisively turning towards accommodation, shying away from rate normalization for the foreseeable future.
A number of sovereign yields have plummeted to new year lows while risk aversion trading strategies have tended to dominate proceedings as U.S/China trade talks (Mar 28/29) remain a focus along with U.Ks Brexit next steps.
9.54am GMT
Not everyone is convinced by Draghi's claim that the ECB has plenty of tools at its disposal to fight the next downturn.
Sure, it can leave interest rates at record low levels for even longer. It can launch new TLTRO programmes to stimulate bank lending. It could even (I guess) restart its asset purchase scheme programme, or keep delaying the moment when it starts to unwind its existing QE.
"We have lots of policy instruments left - you just don't know them - they go to a different school" https://t.co/Bts1hb8sLf
A better statement would be - we will strive our utmost to achieve the mandate, but there is only so much you can do at the zero bound and at some point fiscal policy has to do the rest. https://t.co/DCeubEofzZ
9.34am GMT
Overnight, we've received fresh evidence that China's economy is weakening.
9.14am GMT
Here's our news story on Sports Direct's potential bid for Debenhams:
Related: Sports Direct weighs up making 61.4m bid for Debenhams
9.07am GMT
Draghi also offered a crumb of comfort to eurozone banks.
He says the ECB is monitoring the impact of negative interest rates on their profits, and could take measures to help.
Euro bounces as Draghi says #ECB may need to soften the impact of negative rates. ECB president says officials may 'need to reflect' on the matter. pic.twitter.com/vjKOGZtb1b
8.54am GMT
Mario Draghi ends his speech by declaring that the ECB has plenty of firepower at its fingertips,
Our monetary policy will remain accommodative and will respond to any changes in the inflation outlook. The effects of exchange rate appreciation have now reversed. Demand should recover, so long as the downside risks to our outlook do not materialise. And with stronger demand, firms should be able to rebuild margins.
The ECB will adopt all the monetary policy actions that are necessary and proportionate to achieve its objective. We are not short of instruments to deliver on our mandate.
"We are not short on instruments to deliver on our mandate" #Draghi final words at his last speech at the #ecbwatchers conference today pic.twitter.com/8hDoxWHoWL
8.46am GMT
Mario Draghi says risks to the euro area's economic outlook remain tilted to the downside.
More dovishness from Draghi.$EUR pic.twitter.com/U99XUCvTIE
8.39am GMT
Mario Draghi goes on to warn that the risks to the eurozone economy have risen in recent months, due to problems in the global economy.
He points out that new export orders are still in negative territory, suggesting Eurozone factories are struggling.
All in all, the current data suggest that external demand has not yet spilled over significantly into domestic demand, but the risks have risen in the last months and uncertainty remains high.
This is why our medium-term outlook remains that growth will gradually return to potential, but the risks remain tilted to the downside.
8.26am GMT
Over in Frankfurt, European Central Bank president Mario Draghi is opening its annual gathering with economists (titled "The ECB and Its Watchers XX")
Draghi begins by warning that the eurozone has suffered a loss of growth momentum in 2018 and early 2019.
The weakness in world trade has continued, which has significantly affected the manufacturing sector. Global goods import growth in January reached its lowest level since the Great Recession, on the back of rising uncertainty about trade disputes and a slowdown in emerging market economies, especially China.
As a result, growth in extra-euro area goods exports was negative at the end of last year for the first time since January 2016, and industrial production fell by 4.2% year on year in December - its largest decline since 2013 - before recovering somewhat in January .
Draghi...now pic.twitter.com/Iu89ATnW6f
8.17am GMT
Here's Laith Khalaf, senior analyst at Hargreaves Lansdown, on the latest twist in the battle for Debenhams:
'Mike Ashley has clearly decided it's double rather than quits on Debenhams. The potential 5p offer would be a generous one for shareholders, but it comes with strings attached for Debenhams, in particular appointing Mike Ashley as CEO, and desisting from current plans to refinance the company.
The Debenhams board are bound by their duty to shareholders to give this proposal proper consideration, though it's not as yet a firm offer for the company. There's a bit of a chicken and egg situation here too. If Debenhams appoints Mike Ashley as CEO, then there's little to bind Sports Direct to making a firm offer.
8.15am GMT
Michael Hewson of CMC Markets fears that some Debenhams stores will close, whether Mike Ashley succeeds or fails in seizing control.
The attempts to restructure the business have been going in since the end of Q3 last year, with a tug of war going on between Debenhams management and their largest shareholder, Sports Direct.
While Mike Ashley's attempts to take over Debenhams can be construed as an attempt to preserve the value of his stake in the business, which isn't an unreasonable position to take, the fact is if he gets it wrong he'll end up losing more than his initial stake, which would appear to suggest that Debenhams management reluctance to engage is driven more by personality than in any sense an attempt to safeguard existing shareholder interest.
8.11am GMT
Boom! Debenhams shares have surged by 80% at the start of trading.
That vertiginous leap sends them back to the giddy heights of.... er.... 4p, compared with 22p a year ago.
8.06am GMT
Many analysts believe Mike Ashley's plan is to merge Debenhams with another UK department store, House of Fraser, which he rescued from administration last year.
Would he be allowed to do it, though? The Competitions and Markets Authority might have issues, as the Evening Standard's Laura Onita points out.
Things to consider if, and that's a big if, Mike Ashley's Sports Direct does cough up 61 million for Debenhams. What the Takeover Panel might make of all this and a possible merger with HoF with the CMA stepping in.
7.59am GMT
ITV's Joel Hills says Sports Direct is trying to avoid losing its 29.9% stake in Debenhams, if its restructuring plan goes through:
In the statement Sports Direct said shareholders are "sick and tired of being ignored, cast aside and trampled underfoot by the lenders of Debenhams."
The statement accused the board of Debenhams of "incompetence, or worse collusion" - conspiring with lenders to cook-up a plan to take shareholders out.
"This is the shareholders chance to fight back" - Mike Ashley considers 40m cash bid to take full control of Debenhams. There are strings attached, there always are... https://t.co/pV6hdxmDki
7.56am GMT
Back in the UK, retail chain Sports Direct has announced it's considering launching a takeover offer for troubled rival Debenhams, at 5p per share.
Debenhams, which has 165 stores and employs 25,000 people, is facing cashflow problems as suppliers demand upfront payments amid uncertainty over its future, and has 520m of long-term debt, which must be refinanced by next year.
Sports Direct's potential cash bid is Ashley's latest gambit to wrest control of Debenhams and prevent Sports Direct's stake from being wiped out.
MIke Ashley's Sports Direct says it is prepared to pay 61.4m for Debenhams,if it immediately installs him as chief exec and ends rescue finance talks. Doesn't mention what it will do abt dept store's 560m of existing debt and 160m more the company says it needs to stay afloat.
7.46am GMT
Kiwibank senior economist Jeremy Couchman says he now expects New Zealand to slash interest rates in May, and again in August.
That's quite a change - previously Couchman (like most economists) had expected borrowing costs to remain unchanged for some time.
7.45am GMT
Here's the moment when the New Zealand dollar plunged, after the Reserve Bank announced it would probably cut interest rates soon:
El Banco central de Nueva Zelanda #RBNZ mantiene los tipos intactos en el 1,75%, tal y como esperaba el mercado, pero cambia su lenguaje a un tono #dovish.
Y fijense en la reaccion en el #kiwi #NZDUSD pic.twitter.com/EIxqKXlaz3
7.40am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
New Zealand's central bank has joins the ranks of gloomy policymakers warning that the global economic outlook has weakened.
"Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down,"
"The risk of a more pronounced global downturn has increased and low business sentiment continues to weigh on domestic spending."
NZDUSD Tumbles Through Support as RBNZ Hints Rate Cut as Next Move
The New Zealand Dollar declined as much as 1.45%, setting itself up for the worst performance in a single day since February 6th on a more dovish RBNZ rate decision as expected. Holding rates unchanged at 1.75% pic.twitter.com/9aA2pqwve4