The major market theme is the collapse in the lira and fears of contagion
If you account for Friday and today's trading, the lira has fallen by more than 23% against the dollar. Despite recovering some losses in the early morning, the currency is still down by more than 6% against the greenback currently.
The fact that we're inching towards establishing a base around the 7.00 level is causing concerns of contagion across asset classes in financial markets. Last week, Societe Generale and Goldman Sachs pointed out that a USD/TRY level of 7.00 to 7.10 would start to eat into domestic banks' capital buffers and that would ultimately lead to some worries for regional banks too.
The ECB also reportedly raised concerns for BBVA, UniCredit, and BNP on their exposure to Turkish credit. Further fall in the lira would only exacerbate those concerns.
Right now, we're seeing equities take a hit across the board as EM suffers a blow (ZAR also sharply down):
- Nikkei -1.9%
- Hang Seng -1.8%
- Shanghai Composite -1.7%
Major currencies are seeing some decent flow to start the day, but nothing that screams out an all-out panic just yet. S&P 500 futures are only down about 0.5% currently but I'd reckon if we start seeing sharper declines there, then there will be more risk-off moves to come later in the day.
