US stock-index futures opened lower on Friday morning following news of a currency meltdown in Turkey.
Economic and political upheaval in Turkey has pushed the value of the Turkish lira to a record low, while the US Dollar index is at its strongest in a year. The response of the US markets stems from investors’ fears that the contagion from Turkey’s predicament could spread into global financial markets.
What Happened in Turkey?
President Erdogan, Turkey’s leader for most of the past 15 years, had previously reduced the country’s inflation rate. During this time, Turkey’s economy grew by about 60%. Erdogan also brokered a challenging peace agreement with Kurdistan, located to the southeast of Turkey.
However, after a failed 2016 coup and a string of terrorist incidents resulting from tension with the Kurds, there has been a stark change in Erdogan’s leadership. More recently, he has taken a far more conservative course, closing down media channels, arresting lawmakers and applying pressure to the country’s central bank.
This government interference with the central bank led the European Central Bank to state their concerns which triggered the recent decline in the Turkish currency. A fresh spike in inflation has also fanned the flames of the crisis.
Dow futures (YM) were down over 230 points Friday morning, S&P 500 futures (ES) were down 20 points, and Nasdaq futures (NQ) were down as much as 63 points.
The chart image above displays the past year of daily data for DX futures, with Bollinger bands and a Moving Average Convergence Divergence (MACD) indicator in the lower panel.
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