SYDNEY (Reuters) – Asian markets held their ground on Monday as a dip in the Turkish lira tested risk appetite, with stocks and bonds showing only a limited supply of safe havens.
The dollar traded 12% higher on the pound at 8,100, but fell to an early high of 8,450, amid speculation that Turkish authorities would step in to stop it.
The slide came after President Tayyip Erdogan shocked markets by replacing the Turkish central bank governor with a 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.
After an initial shake-up, sentiment appeared to be stabilizing, and the broader MSCI index of Asia-Pacific stocks outside of Japan was almost flat.
Japan’s Nikkei fell 1.4% without the help of talks Japanese retail investors could lose long long positions in the high-yield pound.
Nasdaq futures rose 0.1%, while S&P 500 futures fell slightly 0.1%. Yields on 10-year treasury bills fell by 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 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.
A number of Fed officials are speaking this week, including three appearances by President Jerome Powell, offering plenty of opportunities for more volatility in the markets.
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Monday’s fall in pounds saw the yen modest, with gains in the euro and the Australian dollar. In turn, this slightly pulled the euro down against the dollar, to $ 1.1889.
After an initial decline, the dollar soon stabilized at 108.86 yen, while the dollar index was a shade higher at 92,080.
Also supporting the yen has been the concern of Japanese retail investors who have built long pound positions, a popular trade for the starving sector, which could be eliminated and trigger 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 insufficient 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 dropped 53 cents to $ 64.00 a barrel, while American crude lost 55 cents to $ 60.87 a barrel.
Reporting by Wayne Cole; Editing by Peter Cooney and Lincoln Feast.