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

0

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,
+10.01%

rose by as much as 15% vs the Turkish lira, and stocks
XU100,
-9.45%

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
USDMXN,
+1.49%
,
the South African rand
USDZAR,
+0.82%

and the Russian ruble
USDRUB,
+0.72%
.

BBVA
BBVA,
-6.26%
,
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,
-0.13%

slipped 0.2% and U.S. stock futures
ES00,
-0.07%

traded lower.

Airline stocks including International Airlines Group
IAG,
-6.39%
,
easyJet
EZJ,
-6.83%

and Ryanair
RYA,
-5.57%

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,
+1.29%
,
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%.

Volkswagen
VOW3,
+4.47%

and its majority owner Porsche Automobil Holding
PAH3,
+5.95%

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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