European stocks rally hits pause as peso and lira tumble
Pedestrians leave and enter the London Stock Exchange. (REUTERS/Neil Hall)
LONDON: European stock markets dropped on Thursday (Aug 30) on profit-taking after a recent run higher on optimism on trade deals, while Argentina's peso and the Turkish lira tumbled.The peso slumped to a new record low, prompting Argentina's central bank to raise its benchmark interest rate from 45 to 60 per cent in a bid to arrest a slide in its value.
The drop followed the IMF's agreement to a request from the Argentinean government on Wednesday to speed up payments under its US$50 billion loan.The peso fell nearly 15 per cent against the US dollar, taking its losses since the beginning of the year to over 45 per cent.Meanwhile, the Turkish lira suffered fresh losses, dropping almost five per cent against the dollar, as a deputy central bank governor resigned.The lira has lost nearly 45 per cent of its value against the dollar since the beginning of the year, which led economists to warn of a full-blown recession.
"The latest Turkish activity data suggest that the plunge in the lira since May, and the associated sharp tightening of financial conditions, has tipped the economy into recession. Things are only likely to get worse," Capital Economics said in a note.The currency had already been hit by concerns over monetary policy under President Recep Tayyip Erdogan but tanked this month after a public spat with the United States.Analysts say measures taken by the authorities are not enough and call for a sharp hike in interest rates - strongly opposed by Erdogan's government which sees economic growth as its top priority.The resignation of the deputy governor will give Erdogan the chance to appoint another official who sits on the central bank's committee which decides on interest rates.
Other emerging market currencies also slid as investors shied away from risk.On Wall Street, stocks were lower as investors took profits from a record-setting rally on hopes that Canada and the United States were close to a deal on reviving the North American Free Trade Agreement.While hopes were still high for a deal, investors began to worry about other issues, and European stocks suffered.London closed down 0.6 per cent, followed by a drops of 0.5 per cent in Frankfurt and 0.4 per cent in Paris."Stocks are firmly in the red as rising Italian government bond yields, a slide in emerging market currencies, and continued uncertainty about US-China trade tensions have weighed on markets," said market analyst David Madden at CMC Markets UK."Those topics have been bubbling away in the background, and now they are at the forefront of dealers' minds," he added.Italy sold 10-year bonds at a 3.25 per cent rate of return for investors, crossing the 3.0 per cent threshold for the first time since May 2014.The yield on Italian debt has shot over the 3.0 per cent level several times in the secondary markets several times in recent months as an anti-establishment coalition came to power and has signalled changes to economic and budget policy.Higher borrowing costs could put additional strain on Italy, which has the largest debt in the eurozone and where growth was tepid.Key figures around 1530 GMT:New York - Dow Jones: DOWN 0.4 per cent at 26,017.31 pointsLondon - FTSE 100: DOWN 0.6 per cent at 7,516.03 (close)Frankfurt - DAX 30: DOWN 0.5 per cent at 12,494.24 (close)Paris - CAC 40: DOWN 0.4 per cent at 5,478.06 (close)EURO STOXX 50: DOWN 0.7 per cent at 3,431.82Tokyo - Nikkei 225: UP 0.1 per cent at 22,869.50 (close)Hong Kong - Hang Seng: DOWN 0.9 per cent at 28,164.05 (close)Shanghai - Composite: DOWN 1.1 per cent at 2,737.74 (close)Euro/dollar: DOWN at US$1.1646 from US$1.1709 at 2100 GMTPound/dollar: DOWN at US$1.3004 from US$1.3028Dollar/yen: DOWN at 111.24 yen from 111.68 yenOil - Brent Crude: UP 31 cents at US$77.45 per barrelOil - West Texas Intermediate: UP 14 cents at US$69.65 per barrel
Source : https://www.channelnewsasia.com/news/business/european-stocks-rally-hits-pause-as-peso-and-lira-tumble-10669064