Turkey contagion risks are elevated - ANZ

Analysts at ANZ Bank New Zealand Limited ("ANZ") explained that there was a strong risk-off move in global markets as President Erdogan’s speech failed to calm nerves and President Trump pledged to double the steel and aluminium tariffs against the country. 

Key Quotes:

"The USD strengthened across the board, treasury yields fell, stocks were sold, and commodities were mixed."

"The Turkish lira fell 15% on Friday, bringing year to date declines to 42% in a country with considerable foreign-denominated debt. Emerging market currencies followed with the Argentinian peso falling close to 4% and frontier markets off nearly 3%. The JPY was the only G10 currency to appreciate against the USD, rising 0.3%."

"EUR fell 1%, testing 1.14, with European banks exposed to Turkey (see below)."

"Treasury yields fell 4-5bps across the curve. Italian yields rose 10-15bps due to perceived risks to the banking sector; Spanish yields were up only 2-3bps."

"The main equity indexes fell 1.6 to 2% in Europe, with the S&P 500 down 0.7% in the US. Turkish shares fell around 16% in a US-traded ETF."

"WTI oil rose around 1% with gold – oddly –unchanged. Agricultural commodities fell with USDA updating their stocks and production estimates higher. Soy prices were off nearly 5%; other agricultural products were down 3%."