Europe Markets: Turkish lira and stocks slump after Erdogan fires central bank chief


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

rose by as much as 15% vs the Turkish lira, and stocks

opened 7% 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 and the Japanese yen, and away from currencies including the Mexican peso
the South African rand

and the Russian ruble

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

That caution spread to stocks, where the Stoxx Europe 600

slipped 0.2% and U.S. stock futures

traded lower.

Airline stocks including International Airlines Group

and Ryanair

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
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 0.9%.


and its majority owner Porsche Automobil Holding

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

[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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