Lira sell off spreads like wildfire

Lira sell-off spreads like wildfire

The FTSE closed down nearly 1% after a turbulent day during which the sharp decline in the Turkish lira quickly spread across global markets. The Dow Jones Industrial Average dropped more than 200 points while the S&P 500 declined 0.56%, rattled not only by the fall in the Turkish currency but also warnings from the European Central Bank about the exposure of some European banks to Turkish borrowers. 

If the currency continues falling at the current pace Turkish borrowers may not be able to pay off their foreign currency debt and could potentially default on their loans putting banks like Spain’s Banco Bilbao Vizcaya Argentaria, Italy’s UniCredit and France’s BNP Paribas in a difficult position. 

President Trump did his part for the Turkish currency tweeting that he has authorised the doubling of tariffs on imports of Turkish aluminium and steel to 20% and 50%, respectively. The Turkish currency started the day at 6 but continued to weaken to 6.38 against the dollar. 

Turkey's turmoil boosts the dollar

The turmoil in Turkey and other emerging markets spelled bad news for the euro and the pound but helped prop up the dollar to a 14-month high. The euro dropped to a 14-month low of 1.1426 against the dollar. The pound, still reeling from domestic pressures and concerns over a no-deal Brexit slipped 0.44% to 1.2770. The selloff in the rouble, which started Thursday after the US announced its decision to introduce a new set of sanctions against Russia, continued apace and saw the currency tumble 0.85% to 67.2560 against the dollar. 

Russian companies did not manage to avoid the contagion and Russian steel maker Evraz traded nearly 9% lower in London. 

House of Fraser’s narrow escape 

In a combo that is difficult to imagine the bargain sports shop Sports Direct has bought the upmarket department store chain House of Fraser for £90 million just hours after the chain said it went into administration. It is anybody’s guess how the two firms will work together but Sports Direct’s Mike Ashley said he plans to turn the 59-store chain in to the "Harrods of the High Street". House of Fraser is not alone in its struggle to stay afloat amid tight margins and intense competition from internet sales. This year alone Toys R Us and Maplins have collapsed while Marks & Spencer, Mothercare and Homebase have announced branch closures and have opted for company voluntary agreements that help avoid administration.  Budget retailer Poundworld, which was also flirting with collapse, was bailed out at the last minute by an Irish family who specialise in discount retail.