Traders walk on the floor of the Borsa Istanbul in Istanbul. Photo: Reuters/Murad Sezer

Turkey’s stock market is now down 7% from its August 29 peak in US dollar terms. The Turkish lira depreciated about 1% today while the BIST 30 Index was down about 1.7% in local currency terms, making Istanbul the world’s worst performing major market.

That’s due in part to dodgy politics, but we also note that carry-trade currencies are having a bad day. Brazil’s stock market is down 0.7% in dollar terms. Brazil and Turkey use high interest rates to attract hot money to cover big current account deficits. That works well enough when the US dollar is weak, as we noted yesterday. But the market is nervous in front of tomorrow’s Federal Reserve meeting; a hawkish tone from the Fed could give the dollar a bounce and trample the carry trade.

We’ve been warning about weakness in Turkey for the past week and would steer clear of the market for the time being.