Turkish Markets Cave Under U.S. Pressure as Banks Hit Over Syria

Turkish Markets Cave Under U.S. Pressure as Banks Hit Over Syria(Bloomberg) — A renewed sell-off gripped Turkish markets after the U.S. brought criminal charges against one of the nation’s largest banks, in what could be an escalation of Washington’s efforts to reprimand Ankara for its military incursion into northeast Syria.Stocks fell with government bonds and shares of Turkey’s state-run Halkbank slumped the most in a year. The lira bucked the rout as state banks were seen selling dollars to support the currency, according to three traders with knowledge of the matter.An indictment filed Tuesday in a Manhattan federal court accused Halkbank of participating in a wide-ranging plot to violate prohibitions on Iran’s access to the U.S. financial system. The looming legal standoff is raising an alarm in Turkey that the U.S. may soon mete out more severe penalties, dealing another blow to the $ 772 billion economy that’s just begun to recover from a recession and remains heavily reliant on foreign capital.“The timing of these charges would appear to be less than coincidental and is clearly highly politicized,” said Julian Rimmer, a trader at Investec Bank in London. “This is another warning shot across Turkey’s bow.”On Tuesday, Donald Trump sanctioned three senior Turkish officials and increased steel tariffs — a milder punishment than expected — but U.S. lawmakers from both parties are already pushing the president to adopt stricter measures.‘Immediate Cease-Fire’The Trump administration has been calling for “an immediate cease-fire” in Syria after the hostilities unleashed by Turkey across its border this month. President Recep Tayyip Erdogan has rejected the demand.U.S. Vice President Mike Pence will meet Erdogan on Thursday in Ankara to reiterate Trump’s commitment to sanctions, according to a White House statement. Secretary of State Mike Pompeo, National Security Adviser Robert O’Brien and Ambassador James Jeffrey will also be on the trip that begins Wednesday.The lira has weakened more than 4% this month as tensions percolate with the U.S. The yield on Halkbank’s dollar bond due 2021 surged more than 400 basis points.In response, the Turkish stock exchange “temporarily” banned short-selling in seven banks, or wagers that their shares will decline using borrowed securities.The banking watchdog also advised some local lenders against offering lira liquidity in the offshore money-market, according to three people with knowledge of the matter, in an apparent attempt to get in the way of betting that it will depreciate further.Turkey Advises Banks Against Offering Lira Liquidity OffshoreThe benchmark Borsa Istanbul 100 Index was trading 1.7% lower as of 12:06 p.m in Istanbul, led by Turkiye Garanti Bankasi AS and Akbank TAS. The lira edged 0.3% higher to 5.8973 per dollar while the yield on two-year government bonds jumped 48 basis points.“The Americans intend to use these charges as leverage,” Rimmer said. “And given they can impose almost unlimited fines and heavy penalties, the Turks will have to take this seriously.”To contact the reporters on this story: Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net;Asli Kandemir in Istanbul at akandemir@bloomberg.net;Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.netTo contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Dana El BaltajiFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

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