London: Stock markets fell sharply on Wednesday, with commodities-linked assets hit by dollar strength, while the lira recovered despite Turkish-US tensions ratcheting higher.
“It’s a broad based sell-off across Europe as dealers are worried about the currency crisis in Turkey, and the cooling of Chinese growth,” said market analyst David Madden at CMC Markets UK.
London finished the day down 1.5 percent, with Frankfurt shedding 1.6 percent and Paris falling 1.8 percent.
Bank shares were hurt by concerns that Turkey’s crisis could cause more widespread pain, while mining and energy companies were penalised as metal prices fell on concerns over slowing Chinese growth and the strength of the dollar.
Wall Street’s main indices were also lower, despite data showing retail sales rising for the sixth straight month in July. The Dow was down 0.9 percent approaching midday in New York.
Meanwhile, the Turkish lira was in recovery mode after tumbling Monday to fresh record lows versus the dollar and euro as Washington and Ankara trade barbs Turkey’s detention of an American pastor.
It was boosted after the Turkish banking regulator cut the amount of funds banks can use for currency swap trading, limiting the possibilities for speculating against the lira.
Turkey on Wednesday said it was hiking tariffs on imports of several key US products in retaliation for American sanctions against Ankara, as the bitter dispute between the two allies that has battered the Turkish lira showed no sign of ending.
Rodrigo Catril, senior foreign exchange strategist at National Australia Bank, said the Turkey crisis was likely to go on for some time.
“It is hard not to see the lira remaining under pressure until we see a material fiscal restraint to cool down the (Turkish) economy, along with a measurable lift in rates by the central bank and a diplomatic resolution to US tensions,” said the analyst.
The lira has been under pressure for weeks over growing concerns about the health of the economy but the currency lost nearly a fifth of its value against the dollar on Friday and Monday after US President Donald Trump announced Washington was ramping up aluminium and steel tariffs on Turkey.
Traders fret that Turkey’s woes could spark contagion into other emerging currencies and also that banks in advanced nations could suffer due to exposure to the Turkish economy.
Meanwhile with the dollar still strong against the lira and other currencies, oil prices, metals futures and shares in mining groups were all suffering.
Dollar-denominated “commodity prices have been sliding lower once more, with the rise in the dollar and continued fears over the US-China trade war denting confidence”, said Joshua Mahony, market analyst at IG trading group.
The United States and China have slapped tit-for-tat tariffs on tens of billions of dollars worth of goods from each country, with another round of levies scheduled to begin next week.
Oil plunged after data showed US crude stocks rose by 6.8 million barrels to 414.2 million barrels, confounding analysts surveyed by Bloomberg who had expected a drop of 2.5 million barrels.
– Key figures around 1530 GMT –
Dollar/Turkish lira: DOWN at 5.96 lira from 6.53 lira early Wednesday
Euro/Turkish lira: DOWN at 6.7709 lira from 7.43 lira early Wednesday
Euro/dollar: UP at $1.1326 from $1.1322
Pound/dollar: DOWN at $1.2690 from $1.2698
Dollar/yen: DOWN at 110.56 from 111.24 yen
New York – Dow Jones: DOWN 0.9 percent at 25,1067 points
London – FTSE 100: DOWN 1.5 percent at 7,497.87 (close)
Frankfurt – DAX 30: DOWN 1.6 percent at 12,163.01 (close)
Paris – CAC 40: DOWN 1.8 percent at 5,305.22 (close)
EURO STOXX 50: DOWN 1.7 percent at 3,350.29
Tokyo – Nikkei 225: DOWN 0.7 percent at 22,204.22 (close)
Hong Kong – Hang Seng: DOWN 1.6 percent at 27,323.59 (close)
Shanghai – Composite: DOWN 2.1 percent at 2,723.26 (close)
Oil – Brent Crude: DOWN $2.01 at $70.45 per barrel
Oil – West Texas Intermediate: DOWN $2.43 at $64.61 per barrel