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Europe Markets: Lira and Turkish stocks collapse after Erdogan fires central bank chief, as other emerging market currencies struggle

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Turkey’s currency and stocks collapsed after the abrupt termination of its central bank head, a move that led investors to take a cautious stance toward risky assets on Monday.

The dollar
USDTRY,
+9.32%

rose by as much as 15% vs the Turkish lira, and the BIST-100 stock-market index
XU100,
-8.83%

traded 8% lower after President Recep Tayyip Erdogan’s decision to replace Governor Naci Agbal with Sahap Kavcioglu — the third change at the Central Bank of the Republic of Turkey (CBRT) in two years. Turkey’s central bank last week hiked interest rates by 2 percentage points to 19%, a full percentage point more than expected.

“With Naci Agbal’s removal from the CBRT, Turkey loses one of its last remaining anchors of institutional credibility,” said Phoenix Kalen, a strategist at French bank Societe Generale. “During his short tenure, Agbal had succeeded where various predecessors had not – in cultivating trust in the central bank’s inflation-targeting framework, in restoring monetary policy independence, in encouraging international investors to re-engage with the crisis-prone Turkish narrative, in driving an 18.0% rally in the lira against the dollar, and most crucially – in arresting and even reversing the damaging trend of dollarization in the economy.”

The moves in Turkey sent traders into safe-haven currencies such as the dollar
DXY,
-0.13%

and the Japanese yen
USDJPY,
-0.20%
,
and away from emerging-market currencies including the Mexican peso
USDMXN,
+0.69%
,
the South African rand
USDZAR,
-0.08%

and the Russian ruble
USDRUB,
+0.43%
.

BBVA
BBVA,
-6.41%
,
which owns just under half of Turkey’s Garanti BBVA, tumbled 7% in Madrid.

That caution spread to stocks, where the Stoxx Europe 600
SXXP,
+0.07%

and U.S. stock futures
ES00,
+0.22%

were fractionally higher.

Airline stocks including International Airlines Group
IAG,
-5.76%
,
easyJet
EZJ,
-6.35%

and Ryanair
RYA,
-4.90%

skidded after scientific advisors were reportedly urging U.K. Prime Minister Boris Johnson not to lift a ban on foreign holidays. That comes as the European Union has struggled in its vaccination campaign and is now considering blocking exports of AstraZeneca-made vaccines to the U.K.

Shares of AstraZeneca
AZN,
+2.21%
,
which separately reported that its vaccine, made with Oxford University, was 79% effective in preventing COVID-19 and 100% effective in preventing severe disease in a U.S. trial, rose 1.1%.

Volkswagen
VOW3,
+6.25%

and its majority owner Porsche Automobil Holding
PAH3,
+6.44%

both advanced, continuing their stellar run since VW laid out its electric vehicle and battery plans. Analysts at Deutsche Bank hiked its price target on VW by 46% and on Porsche by 38%. “With the global roll-out of the ID.4 we see a good chance that VW could surpass Tesla’s
TSLA,
+0.26%

[battery electric vehicle] sales as soon as next year, which should increase the credit given to its EV strategy,” said the analysts.

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