SYDNEY (Reuters) – Asian markets held their nerves on Monday as a dip in the Turkish lira showed a proven risk appetite, with stocks and bonds showing only limited offers for safe havens.
The dollar traded 12% higher on the lira at 8,100, but that was after an early peak of 8.4850 amid speculation that Turkish authorities would step in to stop the defeat.
The decline came after President Tayyip Erdogan shocked the markets by replacing the Turkish central bank governor with a critic of high interest rates.
Erdogan’s decision to fire Governor Agbal, who had sought to instill some price stability and a perception of the bank’s independence, now begs the question of whether the new governor will seek lower interest rates while still striving for it. fighting higher inflation, ”said Rodrigo Catril, a senior FX strategist at NAB.
After an initial fluctuation, sentiment appeared to stabilize and the MSCI’s widest index of Asia-Pacific stocks outside Japan was almost flat.
Japan’s Nikkei was down 1.4%, unaided by talk of Japanese private investors could suffer losses on large long positions in the high-yield lira.
Nasdaq futures were up 0.1%, while S&P 500 futures were down just under 0.1%. Yields on 10-year Treasury bonds fell a few basis points to 1.71%, suggesting that there is no widespread rush to safety.
Investors are still struggling to cope with the recent rise in US bond yields, which makes equity valuations for some sectors, especially technology, look stretched.
Bonds surged again on Friday when the Federal Reserve decided not to renew a capital concession for banks, which could reduce their demand for Treasury bills.
However, the damage was mitigated by the Fed’s promise to work on the rules to avoid tensions in the financial system.
A host of Fed officials spoke this week, including three appearances by Chairman Jerome Powell, providing ample opportunity for more volatility in the markets.
LOOKING FOR EMERGING MARKETS
The fall in the lira on Monday kept the yen modest, with gains on the euro and Australian dollar. That in turn dropped the euro slightly against the dollar to $ 1.1889.
After an initial downturn, the dollar quickly stabilized at 108.86 yen, while the dollar index was a shadow higher at 92.080.
The yen also supported concerns that Japanese retail investors who have built long positions in lira, a popular transaction for the yield-hungry industry, could be squeezed out and trigger another round of lira sales.
Still, analysts at Citi doubted that incident would lead to widespread pressure on emerging markets, noting that the last time the lira fell in 2020, there was little spillover effect.
“In terms of the impact on other parts of the high yield emerging markets, we think it will be quite limited,” Citi said in a note.
There was hardly any sign of a safe haven for gold, which fell 0.3% to $ 1,739 an ounce.
Oil prices fell again, falling nearly 7% last week as global demand concerns prompt speculators to take gains on long positions after a long bull run. [O/R]
Brent fell 53 cents to $ 64.00 a barrel, while US crude oil lost 55 cents to $ 60.87 a barrel.
Reporting by Wayne Cole; Adaptation by Peter Cooney and Lincoln Feast.