Europe midday: Renewed slide in Turkish stocks and currency dents sentiment

Stocks across the Continent are weaker, with investor sentiment taking another hit after Turkey's President, Recep Tayyip Erdogan, dismissed the possibility of interest rate hikes at the weekend.

That sent the country's currency, the lira, reeling, undermining the share prices of lenders with exposure to the Mediterranean country and sentiment towards Emerging Markets more generally.

Commenting on the situation, Michael Hewson at CMC Markets UK, said: "While on its own this crisis may well seem contained, and small in nature, there does appear to be a sense that this was yet another reason for investors to take a step back.

"Against an already difficult geopolitical backdrop, coming as it has on the back of rising concerns over an escalation between the US and China on trade, the implementation of new sanctions against Russia last week, this growing crisis in Turkey appears to be giving investors too many balls to juggle, hence this latest bout of risk aversion, which is also having some ripple out effects into other currencies including the South African rand."

As of 1129 BST, the benchmark Stoxx 600 was trading lower by 0.49% or 1.90 points to 383.96, alongside a drop of 0.60% or 74.21 points to 12,349.90 for the German Dax, while the FTSE Mibtel was off by 0.99% or 209.53 points 20,882.07.

Istanbul's equity benchmark, the Borsa Istanbul 100 index, was 4.14% lower to 91,004.44.

In parallel, the US dollar was adding another 7.2% versus the lira to 6.9094, having traded as high as 7.2362 at one point in the session.

Euro/dollar was trading lower again as well, slipping 0.29% to 1.13770, as the yield on benchmark two-year Turkish government debt jumped 94 basis points to 25.74% - its highest since 2008 - and five-year CDS rates for Turkish banks leaped more than 100 basis points higher to 537.

Nonetheless, on Sunday evening the central bank in Ankara said it would "take all necessary measures, if deemed necessary" needed to ensure stability, lowering the amount of funds that the country's lenders needed to keep with it and giving them more flexibility to manage their foreign exchange liquidity.

Meanwhile, the Stoxx 600 gauge of lenders' shares was down by 1.44%, led by declines in BBVA (-3.87%), UniCredit (-3.32%), ING (-3.17%), BNP (-0.95%) and HSBC.

The slide in lenders' shares aside, Bayer was in the spotlight at the start of the week too, after a California jury ordered the German chemicals giant to pay $289m in damages to a man who had alleged that its pesticides, including Roundup, had provoked his cancer.

The flow of data was light on Monday, with the main release of the session being a final reading on Italian consumer prices for July, which were confirmed by ISTAT at up by 1.9% year-on-year, versus a rise of 1.4% in June.