Asia Pacific stocks were mixed on Monday morning. Markets were shocked with President Tayyip Erdogan replacing Turkey’s hawkish central bank governor.
Per Hammarlund, the senior EM strategist at SEB Research, said that the authorities would have two choices. It either vows to use interest rates to stabilize markets, or it imposes capital controls.
With the increasingly authoritarian approach that President Erdogan has taken, Hammarlunde said, capital controls seem to be the most likely choice.
On Monday, Asian stocks turned out mixed, and bonds have bounced. The Turkish lira saw a decline. It sparked talks that capital controls might need to stem the route. This is though the wider fallout was currently restrained.
Versus the lira at 8.0520, the dollar was trading almost 12% higher. This was the sharpest move since August 2018. Back then, the Turkish markets were having another one of their periodic crises.
In Japan, retail investors could face losses on large long positions in the high-yielding lira. Partly on this speculation, the Nikkei fell 1.6%.
The ripples were more modest. Aided by a 0.7% rise in Chinese blue chips, the MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.3%.
EUROSTOXX 50 and FTSE futures eased 0.3% and 0.2%, respectively. Nasdaq futures firmed 0.6%, while S&P 500 futures faltered either side.
Turkish Tumult and Inflation Worry Investors
On Monday morning, bond yields and inflation worries continued to mount. Investors were also still digesting Turkey’s surprise central bank governor replacement.
By 11:16 PM ET (3:16 AM GMT), Japan’s Nikkei 225 fell 1.92%. In South Korea, KOSPI was up 0.16%.
The ASX 200 in Australia climbed 0.64%.
In Hong Kong, the Hang Seng index lost 0.21%. In China, Shanghai Composite added 0.84% while the Shenzhen Component slipped 0.10%. Moreover, the People’s Bank of China released its prime loan rate earlier in the day.
In early Asian trading, the Turkish lira slid as much as 15%. This was when President Erdoğan replaced central bank governor Naci Agbal over the weekend with Sahap Kavcioglu.
This came two days after a steep rate hike aimed at controlling inflation near 16% and supporting the lira.
Furthermore, markets are also focusing on the outcome of a slew of U.S. Treasury auctions. These are of two-, five- and seven-year debt later in the week.
Ten-year yields were hovering near the highest levels in about 14 months, then dropped below 1.70%.