SYDNEY (Reuters) – Asian markets on Monday held nervous as the Turkish lira plunged into a tested risk appetite, with stocks and bonds showing limited bids for safe havens.
The dollar is trading 15% higher at 100% on the lira, but it was at a high of .4.4850 amid speculation that Turkish authorities would intervene to stop the route.
The slide comes after President Tayyip Erdogan shocked the markets by replacing the governor of Turkey’s Hockey Central Bank with a critique of interest rates.
“Ergog’s decision to fire Governor Agbal, who sought to bring some price stability and assumptions about the bank’s independence, now raises the question of whether the new governor will focus on lower rates while still aiming to fight inflation,” said a senior at NABN. FX Strategist.
After the initial tremor, sentiment felt stable and MSCI’s broadcast index of Asia-Pacific stocks outside of Japan was all flat.
Japan’s Nikkei down 1.4%, not helped by talks Japan’s retail investors may face losses over the long term in the high-yielding lira.
Nasdaq futures traded up 0.1%, while S&P 500 futures closed up slightly 0.1%. Yields on 10-year Treasury notes fell a few basis points to 1.71%, indicating a broader rush in security.
Investors are still struggling to cope with the recent rise in US bond yields, which has left equity valuations pending in some sectors, especially tech, appearing to be stretched.
There was another flurry in bonds on Friday when the Federal Reserve decided not to raise capital rebates for banks, which could reduce demand for their treasury.
The losses were limited, however, by the Fed’s promise to work on rules to prevent strain on the financial system.
A host of Fed officials spoke this week including three presentations by Chair Jerome Powell, providing plenty of opportunity for further volatility in the markets.
Looking at Emerging Markets
The yen firm was seen moderating on Monday’s rally in the lira, with the euro and Australian Australian dollar gaining ground. It in turn pulled the euro slightly down on the dollar and reached 18 1.1889.
After the initial slip, the dollar quickly stabilized at 108.86 yen, while the dollar index shed at 92.080.
Supporting the yen was a concern for Japanese retail investors who have created long lira positions, a popular trade for the yield-hungry sector, that it could shrink and trigger a second phase of lira sales.
However, analysts at Citi doubted that the episode would lead to widespread pressure on emerging markets, with the lira depreciating for the last time in 2020, rising slightly.
“In terms of impact on other parts of the high-yield EM, we believe it will be fairly limited,” Citi said in a note.
There was a safe-haven demand for gold, which fell 0.3% to 73 1,739 a barrel.
With oil prices falling again last week, concerns over global demand prompted speculators to take profits on the long position after a long bull run. [O/R]
Brent c 53 cents.00 $ .. 00. The dollar was down 55 cents at .8 60.87 a barrel.
Reporting by Wayne Cole; Edited by Peter Cooney and Lincoln Fist.