SYDNEY (Reuters) – Asian markets faced a new stress test on Monday as a fall in the Turkish lira lifted the yen to a halt and reduced risk appetite, although the consequences so far appeared to be relatively contents.
The dollar was trading at almost 15% higher on the lira at 8,3000 after President Tayyip Erdogan scandalized markets by replacing Turkey’s falconer central bank governor with a critic akin to high interest rates.
“Erdogan’s decision to remove Governor Agbal, who had tried to instill some price stability and a perception of the bank’s independence, now raises questions about whether the new governor will seek lower rates even as he seeks to fight higher inflation said Rodrigo Catril, chief FX strategist at NAB.
Uncertainty was enough to see Nikkei futures fall to 29,280, signaling an initial drop since Friday’s cash close of 29,792.
Nasdaq futures fell 0.3% and S&P 500 futures 0.2%. June futures for 10-year Treasury bills rose just 1 tick, suggesting there was no widespread rush to security.
Investors continue to have trouble coping with the recent rise in U.S. bond yields, which has left equity valuations for some sectors, especially technology.
The bonds had another hesitation on Friday when the Federal Reserve decided not to extend a capital grant for banks, which could lower their demand for treasury.
However, the damage was limited by the Fed’s promise to work on the rules to avoid tensions in the financial system.
Monday’s fall in the lira saw the yen change modestly, with notable gains against the euro and the Australian dollar. In turn, this dragged the euro down above the dollar to $ 1.1880.
After an initial shift, the dollar soon held at 108.86 yen, while the dollar index was a shadow higher at 92.080.
They also raised the yen concerns that Japanese retail investors who have built long lira positions, a popular trade for the yield-hungry sector, could be eliminated, thus triggering another round of lira sales.
However, Citi analysts doubted that this episode would lead to widespread pressure on emerging markets, noting that the last time the lira fell in 2020, there were few overflows.
“As for the impact on other parts of high-performance MS, we believe it will be quite limited,” Citi said in a note.
There was little evidence of demand for safe haven gold, which fell 0.3% to $ 1,739 an ounce.
Oil prices fell again as they fell nearly 7% last week as worries about global demand caused speculators to take profits in long positions after a long run. [O/R]
Brent had 29 cents at $ 64.24 a barrel, while U.S. crude lost 24 cents, to $ 61.18 per barrel.
Wayne Cole Reports; Edited by Peter Cooney