This week: Turkey takes center stage for currency fall, U.S. stocks bounce back and Tesla gets a SEC subpoena.
Investors’ attention was on Ankara this week as the Turkish lira succumbed to a savage slump. The proximate cause was a doubling of U.S. tariffs on Turkish steel and aluminium. This was announced in retaliation for the imprisonment of Andrew Brunson, an evangelical pastor, on terrorism charges.
While the U.S. measures were the spark for this week’s slide, the problems with Turkey’s economy run considerably deeper. Investors have been perturbed by President Recep Tayyip Erdogan’s increasingly autocratic rule and by the appointment of his son-in-law, Berat Albayrak, as finance minister.
Inflation is at 15% and the country’s sizeable current-account deficit is widening as U.S. interest rates rise. President Erdogan has repeatedly ruled out an increase in Turkey’s own interest rates, which he has described as “the mother and father of all evil” and apparently tying the hands of its central bank.
Turkey’s policymakers finally took some action on Wednesday. These included the announcement of severe spending cuts, and new restrictions on bank lending made short-selling the currency more difficult. Albayrak sought to reassure investors by stating that the Turkish authorities would not impose currency controls. Meanwhile, President Erdogan described the spreading of information about the Turkish economy as “treason.”
In response, the lira mounted a recovery towards the end of the week. On Thursday, U.S. Treasury Secretary Steven Mnuchin, threatened Turkey with further sanctions if Brunson is not released.
Down time for most markets
As the Turkish currency crisis rippled around the world, most global stock markets fell in the first few days of the week. Much of the impact from the less-than-delightful Turkish situation was felt in emerging markets, as the lira’s slide prompted a general malaise in the currencies and equities of the developing world.
Chinese shares were especially weak: the CSI 300 index has fallen more than 30% this year, wiping more than $2.5 trillion of the value of Shanghai and Shenzhen-listed shares. The Hong Kong market also fell heavily.
Internet stock Tencent was a prominent loser as investors fretted over its mobile-games business. Its second-quarter results showed a 19% quarter-on-quarter decline in revenue from this business, contributing to Tencent’s first quarterly fall in profits in almost 13 years.
Meanwhile, European shares fell to a six-week low on Wednesday before recovering a little ground thereafter. The FTSE World Europe ex UK index finished Thursday down 1.1%. Italian shares were particularly weak after the collapse of a bridge in Genoa caused the deaths of at least 39 people and led to the declaration of a state of emergency.
In the UK, the FTSE 100 was down 1.4% by Thursday’s close. A steep fall in the prices of copper and other metals contributed to a slump in the shares of mining companies such as Antofagasta, Fresnillo, Rio Tinto, Glencore and BHP Billiton.
U.S. bounces back
Initially, the U.S. market was no exception to the global malaise: the S&P 500 fell particularly heavily on Wednesday. But then U.S. shares staged a remarkable comeback on Thursday, leaving them up 0.3% by Thursday’s close.
The recovery on Wall Street was helped by some good news from Main Street.
The recovery on Wall Street was helped by some good news from Main Street. Shares in Walmart surged by 10% on Thursday after the retailer announced its strongest quarterly U.S. sales for more than 10 years, helped by warm weather and growing consumer confidence. The recent hot weather has boosted sales of paddling pools, summer clothing and air conditioners.
On Thursday, the U.S. Securities and Exchange Commission was reported to have served electrical-car company Tesla with a subpoena. This follows last week’s tweets by Elon Musk, Tesla’s founder, in which he said that he was considering taking the company private and had “secured” the funding to do so. Tesla is also facing lawsuits from investors who believe that they may have been misled as to how advanced the privatization plans actually were.
And finally …
A humble crayfish has become an unlikely star of social media in China after removing one of its own limbs to avoid certain death. The courageous crustacean was destined to become part of a spicy hotpot, but managed to escape by amputating the dead weight of a cooked claw and scurrying off across the restaurant table.
This dashing escape prompted pity on the part of a diner, who decided to give the amputee a new lease of life. Instead of devouring the creature, he has adopted it as a pet. It now resides in an aquarium in his home and has been named Yang Guo, in reference to a one-armed hero of Chinese literature.
Happily, crayfish are able to regrow their claws, so Yang Guo’s farewell to arms won’t prove permanent.
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