Dubai:

A relentless fall in Turkish lira is expected to have continued impact on other markets globally, which were already facing an escalating trade war.

The Turkish Lira fell as much as 18 per cent at one point on Friday, the biggest since Turkey’s financial crisis of 2001, before closing 15.88 per cent lower to 6.4323 against the dollar after US president Donald Trump announced that he was doubling metals tariffs on Turkey. The currency has shed nearly 70 per cent of its value since the start of the year.

“As the crisis evolves, events in Turkey will have a short-term impact on assets outside the country,” said Mark Haefele, global chief investment officer at UBS.

Turkey 10-year bond yields rose 8.4 per cent on Friday to 84. The 5-year Credit Default Swaps — the price to hedge against a default on Turkish debt — jumped to 453 basis points from 378 basis points on Thursday. The CDS was at 323 basis points at the start of the month.

Investors are also turning cautious in holding Turkish assets.

“Amid irrational monetary policy decisions and political uncertainties, investors are continuing to lower their exposure to Turkish assets at this time,” Emirates Investment Bank said in a note.

The fall in Turkish assets caused panic in other world markets. The European stock market gauge fell, along with German DAX index and banking shares were the worst hit.

The EURO STOXX 600 closed 1.07 per cent lower to 385.86, while the German DAX closed 1.99 per cent lower to 12,424.35.

UBS will be looking at contagion on the European banks, along with euro given the dependence of Turkish economy on the European Union.

Turkish borrowers owe $83 billion to Spanish banks. French and Italian lenders have $38.4 billion and $17 billion, respectively of outstanding Turkish loans.

“USDTRY rising above 7 could lead to more concerted pressure on the banking sector, in the absence of the Turkish state stepping in or support from foreign investors,” Haefele from UBS said.

The euro sank as much as 1.2 per cent to the weakest in more than a year on Friday. “While ongoing pressure on Turkey could result in near-term euro weakness, in the longer run we see scope for the currency to recover if Eurozone economic surprises turn more positive,” Haefele said.

Oil to fluctuate

Brent crude prices are expected to be oscillating amid concerns over trade war and rising supplies from Opec and Russia amid US sanctions on Iran.

“The actual impact of renewed sanctions against Iran remains to be seen but a reduction at the upper end of expectations — above 1 million barrels/day — would undoubtedly leave the market too tight for comfort and send the price higher,” Ole Hansen, head of commodity strategy said in a note.

Brent crude settled 1.03 per cent higher to $72.81 per barrel, while West Texas Intermediate closed 1.23 per cent higher to $67.63 per barrel.