SYDNEY (Reuters) – Asian markets held zero on Monday as a spike in Turkish lira risk appetite, with stocks and bonds showing just a limited offer for safe havens.
The dollar traded 12% higher on the lira at 8.100, but that was near an early peak of 8.4850 amid speculation that Turkish authorities would intervene to halt the eruption.
The slide came after President Tayyip Erdogan shocked markets by replacing Turkey’s central bank governor with criticism of high interest rates.
“Erdogan’s decision to fire Governor Agbal, which had sought some price stability and a view on the Bank’s independence, now raises the question of whether the new Governor will look at lower rates while and it is still aiming to fight higher inflation, ”said Rodrigo Catril, its senior FX expert at NAB.
After an initial move, sentiment seemed to be stabilizing and MSCI’s broadest index of Asia-Pacific shares outside of Japan was almost flat.
Japan’s Nikkei fell 1.4%, unhelpful by speaking Japanese retail investors could face the loss of long-held large positions in the high-yielding lira.
Nasdaq futures broke up 0.1%, while S&P 500 futures were just 0.1%. Yields on 10-year Treasury notes fell two basis points to 1.71%, suggesting there was little safety boost.
Investors are still struggling to cope with the recent rise in U.S. bond yields, which has left equity valuations for some sectors, particularly tech, looking stretched.
Bonds had other bonds on Friday when the Federal Reserve decided not to extend capital discounts to banks, which could reduce their demand for Finance.
The damage was limited, however, by the Fed’s promise to work on the rules to prevent tampering with the financial system.
Several Fed officials will speak this week, including three presentations by Chairman Jerome Powell, providing ample opportunity for more volatility in markets.
INCLUDING EMERGING MARKETS
Monday’s tumors in the lira saw the yen largely up, with gains on the euro and the Australian dollar. That dragged the euro down the dollar slightly to $ 1.1889.
After an initial rally, the dollar soon stood at 108.86 yen, while the dollar index was a higher shadow at 92.080.
Also supporting the yen were concerns about Japanese retail investors who have built long lira positions, a popular trade for the hungry product sector, being pushed out and another round of encourage the sale of lira.
However, analysts at Citi were skeptical that a program would lead to widespread pressure on emerging markets, noting that the last time the lira slipped in 2020, there was little spill there.
“In terms of impact on other high yielding parts of EM, we believe this will be very limited,” Citi said in a note.
There was little sign of a safe demand for gold, which fell 0.3% to $ 1,739 an ounce.
Oil prices fell fresh, after losing nearly 7% last week as concerns about global demand prompted speculators to take profits on long positions after a long bull run. [O/R]
Brent went off 53 cents at $ 64.00 a barrel, while the U.S. crude lost 55 cents to $ 60.87 a barrel.
Reciting with Wayne Cole; Edited by Peter Cooney and Lincoln Feast.