SYDNEY (Reuters) – Asian markets remained nervous on Monday as a fall in the Turkish lira tested the appetite for risk, with stocks and bonds only offering a limited offer for safe havens.
The dollar traded up 12% on the lira at 8,100, but an initial peak of 8,450 was triggered amid speculation that Turkish authorities would intervene to stem the defeat.
The slide came after President Tayyip Erdogan surprised markets by replacing the falcon governor of Turkey’s central bank with a critic of 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.
After an initial hesitation, sentiment seemed to stabilize and MSCI’s broader Asia-Pacific stock index outside of Japan was virtually flat.
The Japanese Nikkei fell 1.4%, not helped by the conversation. Japanese retail investors could face losses in large long positions of the high-yield pound.
Nasdaq futures rose 0.1%, while S&P 500 futures fell slightly 0.1%. Yields on 10-year Treasury notes fell a couple of basis points to 1.71%, suggesting no widespread rush to safety.
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.
A number of Fed officials are speaking this week, including three speeches by President Jerome Powell, which offer many opportunities for more volatility in the markets.
LOOKING AT EMERGING MARKETS
Monday’s fall in the lira saw the yen change modestly, with gains in the euro and the Australian dollar. In turn, this dragged the euro slightly above the dollar to $ 1.1889.
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 supported the yen concerns of Japanese retail investors who have built long lira positions, a popular trade for the yield-hungry sector, that could be eliminated and spark another round of lira selling.
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 were few signs of demand for safe gold shelter, 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 fell from 53 cents to $ 64.00 a barrel, while US crude lost 55 cents to $ 60.87 a barrel.
Wayne Cole Reports; Edited by Peter Cooney and Lincoln Feast.