SYDNEY (Reuters) – Asian markets faced a new stress test on Monday, while a dip in the Turkish lira raised the yen safely and reduced risk appetite, although failures so far appeared to be relatively limited.
The dollar traded nearly 15% higher on the pound at 8.3000 after President Tayyip Erdogan shocked markets by replacing the Turkish central bank’s governor with a similar critic of high interest rates.
“Erdogan’s decision to fire Governor Agbal, who sought to instigate some price stability and a perception of the bank’s independence, now raises the question of whether the new governor will seek lower rates while continuing to fight higher inflation Said Rodrigo Catril, senior FX strategist at NAB.
Uncertainty was enough to see Nikkei futures rise to 29,280, indicating an opening drop since Friday’s close of 29,792.
Nasdaq futures fell 0.3% and the S&P 500 futures fell 0.2%. Futures in June for 10-year Treasury bills rose by a single tick, suggesting there was no widespread rush to safety.
Investors are still struggling to cope with the recent rise in US bond yields, which has left equity valuations for some sectors, especially those in technology, which appear to be large.
Bonds fluctuated further on Friday, when the Federal Reserve decided not to extend a capital concession to banks, which could dampen their demand for cash.
However, the damage was limited by the Fed’s promise to work on rules to prevent strains in the financial system.
Monday’s fall in pounds saw the yen modest, with notable gains against the euro and the Australian dollar. In turn, this slightly pulled the euro down against the dollar, to $ 1.1880.
After an initial decline, the dollar soon stabilized at 108.86 yen, while the dollar index was a shade higher at 92,080.
The rise of the yen has also been the concern of Japanese retail investors who have built long pound positions, a popular transaction for the starving sector of yields, which could be eliminated, thus triggering another round of pound sales.
However, Citi analysts doubted that this episode would lead to widespread pressure on emerging markets, noting that the last time the pound fell in 2020, there was little influence.
“As for the impact on other parts of the high-yielding EM, we believe it will be quite limited,” Citi said in a note.
There were few signs of the demand for safe gold, which fell 0.3% to $ 1,739 an ounce.
Oil prices fell again, after falling by almost 7% last week, as worries about global demand led speculators to take long-term profits after a long run. [O/R]
Brent fell 29 cents to $ 64.24 a barrel, while US crude lost 24 cents to $ 61.18 a barrel.
Reporting by Wayne Cole; Montage by Peter Cooney