SYDNEY (Reuters) – Asian equity markets slipped and the euro hit a low for the year on Monday as a new decline in the Turkish lira spurred demand for safe havens, including the US dollar, Swiss franc and yen.
People walk past an electronic board showing the Japanese Nikkei average outside a brokerage firm in Tokyo, Japan, on March 23, 201
The Japanese Nikkei lost 0.95 percent and MSCI's broadest index of Asian-Pacific equities outside Japan gave out 0.3 percent as exchanges in the region went red.
EMini futures for the S & P 500 fell 0.15 percent, while Treasury yields continued to decline.
Much of the early action was in currencies where the euro was trending down as the Turkish lira slipped once more to an all-time low of 7.2401.
It was the last time around 6.8450, after finding little support when Turkish Finance Minister Berat Albayrak said the country had devised an action plan to alleviate investors' concerns, and the bank observer said it was limiting swap transactions.
The currency dropped more than 40 percent this year as Turkish President Tayyip Erdogan's increasing control over the economy and relations with the United States deteriorated.
"The collapse of the lira, which began in May, seems to be driving the Turkish economy into recession and could trigger a banking crisis," said Andrew Kenningham, chief economist at Capital Economics.
"This would be another blow to the EM as an asset class, but the wider economic spillover effects should be quite modest, even for the Eurozone," he added.
Kenningham pointed out that Turkey's annual gross domestic product of about $ 900 billion is only one percent of the world economy and slightly smaller than the Netherlands.
The Turkish stock market has reached less than two percent of the UK market size and only 20 percent have been held by non-residents, he added.
"Nevertheless, the problems of Turkey are another headwind for the Euro and not good news for EM assets."
In fact, the single currency fell to an annual low of CHF 1,133 against the Swiss franc in early trading, and reached a 10-week low of the yen at 125.45.
Against the US dollar, the euro reached its lowest level since July 2017 at $ 1,13715. It was last at $ 1,1392 and still far from last week's peak at $ 1.1628. The dollar rallied to 110.65 against the safe-haven yen, but was a little firmer against a basket of currencies at 96.388.
The Argentine peso and the South African Rand were also caught in crossfire.
"Contagion risks are concentrated in Spanish, Italian and French banks exposed to Turkish foreign currency bonds, as well as in Argentina and South Africa," analysts at ANZ warned.
"Turkey's massive debt mountain in foreign currencies, but a rapidly declining currency – and the inflation that threatens to become exponential – is a toxic combination."
On the commodity markets, gold had barely found anything flowing safety and was last stuck at $ 1,211.80 an ounce.
Oil prices rose 5 cents to $ 72.86 a barrel with Brent, while the US crude oil price rose 15 cents to $ 67.78.
Editorial by Cynthia Osterman and Sam Holmes