Turkish lira rebounds in Asia, so do European shares

Traders work on the floor of the New York Stock Exchange (NYSE) on 13 August 2018 in New York City. The Turkish lira hit a record low on Monday, rattling global currency markets and falling 8 percent against the dollar. Fears persist that the Turkish government can handle a worsening financial crisis.—Photo: AFP
Traders work on the floor of the New York Stock Exchange (NYSE) on 13 August 2018 in New York City. The Turkish lira hit a record low on Monday, rattling global currency markets and falling 8 percent against the dollar. Fears persist that the Turkish government can handle a worsening financial crisis.—Photo: AFP

After two days of the currency turmoil in the global market, Turkish lira regained in Asia on Tuesday when European stocks rose although Indian rupee hit a record low.

According to Reuters, European shares bounced back on Tuesday after two days of heavy selling as investors’ anxieties over contagion from a Turkish currency crisis faded slightly, thanks to reassurances from the central bank and government.

The Turkish lira firmed after the central bank had pledged on Monday to provide liquidity in response to the meltdown which has unsettled global markets.

Investors were also comforted by news that Finance Minister Berat Albayrak would hold a conference call with investors from the United States, Europe and the Middle East on Thursday, his first since assuming the post almost two months ago.

Financials were the biggest driver with euro zone bank stocks .SX7E rising 0.8 per cent, helping to push the pan-European STOXX 600 benchmark up 0.4 per cent.

Banks had been the worst hit by concerns over Turkey, taking the index to a 21-month low.

Italy’s FTSE MIB .FTMIB jumped 0.8 per cent with banks .FTIT8300 gaining as bond yields fell after the government said it had agreed to preserve the stability of state finances and lower public debt.

Investors’ focus once again turned to results.

Antofagasta shares fell 4.1 per cent, the worst performer, after the Chilean copper producer reported first-half earnings fell due to weaker ore quality and higher costs, and said trade tensions were likely to hurt demand.

Swiss dental implant maker Straumann was a top gainer after results, up 4.6 per cent after it raised its full-year revenue target as organic sales growth exceeded 20 per cent for the first time in 10 years.

German utility RWE rose 2.4 per cent after it said its Innogy deal was on track and reported in-line first half profits.

Broker research also drove some sharp stock moves.

Siltronic shares fell 4.8 per cent, with traders saying Citi cut its recommendation on the stock to “neutral”.

Shares in German industrial equipment manufacturer Duerr rose 3.6 per cent with traders saying local broker MM Warburg upgraded the stock to “buy” from “hold”.

A boost to “overweight” from Barclays sent Saipem shares up 2.6 per cent.

Turkish lira, equities enjoy bounce in Asia

AFP reports from Hong Kong

Turkey’s lira edged up with other emerging market currencies in Asian trade Tuesday while equities also enjoyed a bounce after the previous day’s turmoil.

Investors slowly edged back into buying mode but they are keeping a nervous eye on developments in Ankara after Monday’s bloodletting that saw the lira hit record lows against the dollar and euro, and equity markets go into freefall on concerns Turkey’s financial crisis could spread globally.

In Asia, the Turkish unit was at 6.60 to the dollar and 7.49 to the euro, well off the 7.24 to the dollar and 8.12 to the euro seen Monday but still uncomfortably high. The unit is down about a fifth against the greenback since Friday.

Fears about contagion in other economies, particularly emerging markets, sparked a sell-off across the board Monday but there were healthy recoveries in Asian business.

The Russian ruble, which lost two per cent Monday, jumped 1.7 per cent, while the South African rand was 2.2 per cent higher, having lost seven per cent a day earlier. The Mexican peso was up 1.8 per cent.

South Korea’s won was up 0.5 per cent after losing almost one per cent.

However, the rupee continued to suffer, briefly falling to a record low of 70 to the dollar as the crisis exacerbated a months-long sell-off in the Indian currency, which was already under pressure from a huge current-account deficit and higher oil prices.

NS Venkatesh, chief executive of the Association of Mutual Funds in India, told AFP investors were “concerned” about the drop but that he expected the currency to stabilise at around 69, describing India’s economy as “strong”.

“The Reserve Bank of India’s monetary policy has shown concern for the rupee’s fluctuations so investors should not be worried by knee-jerk reactions in the forex market,” Venkatesh said.

India’s central bank has raised interest rates twice this year, in part to help increase the value of the rupee.

  • ‘Contagion limited’ -

Turkey’s crisis has been sparked by a series of issues, including a faltering economy—the central bank has defied market calls for rate hikes—and tensions with the United States, which has hit Ankara with sanctions over its detention of an American pastor.

There was some optimism from news that Donald Trump’s national security advisor John Bolton met Turkish Ambassador Serdar Kilic to discuss the pastor issue.

Traders remain nervous, though, and the central bank’s announcement that it would provide lenders with liquidity and lower the amount of cash they needed to keep in reserve largely disappointed as it made no clear promise of rate hikes, which is what most economists say is needed.

Still, Ray Attrill, head of foreign-exchange strategy at the National Australia Bank, was hopeful the crisis will not spread.

“It’s a large local difficulty, but so far the contagion has been relatively limited,” he told Bloomberg Television.

“We’re seeing a little bit of signs of contagion within the eurozone, within the spreads of those government bonds in countries where the banking sector appears to have the biggest exposure as far as Turkey is concerned. You’d have to say that Turkey is relatively contained.”

On equity markets, Tokyo ended 2.3 per cent higher as the safe-haven yen eased against the dollar, providing some support to exporters.

Sydney added 0.8 per cent and Seoul was 0.5 per cent higher, with Wellington, Mumbai and Taipei also posting healthy gains. Singapore was flat.

But Shanghai ended 0.2 per cent lower and Hong Kong slipped 0.7 per cent.

There remain concerns about how the crisis will pan out, with Turkish President Recep Tayyip Erdogan in combative mood, accusing the US of plotting against his country.

But for now analysts are broadly upbeat that Monday’s plunge would not be repeated.

In early European trade, London rose 0.3 per cent, Paris added 0.5 per cent and Frankfurt gained 0.7 per cent.

  • Key figures around 0810 GMT -

Dollar/Turkish lira: DOWN at 6.90 lira from 6.96 lira late Monday

Euro/dollar: UP at $1.1423 from $1.1405

Pound/dollar: UP at $1.2798 from $1.2763

Dollar/yen: UP at 111.05 yen from 110.63 yen

Tokyo - Nikkei 225: UP 2.3 per cent at 22,356.08 (close)

Hong Kong - Hang Seng: DOWN 0.7 per cent at 27,752.93 (close)

Shanghai - Composite: DOWN 0.2 per cent at 2,780.96 (close)

London - FTSE 100: UP 0.3 per cent at 7,662.27

Oil - West Texas Intermediate: UP 22 cents at $67.42 per barrel

Oil - Brent Crude: UP 15 cents at $72.76 per barrel

New York - Dow Jones: DOWN 0.5 per cent at 25,187.70 (close)

European equities advance at open

Another AFP report from London says: European stocks rose in cautious opening deals on Tuesday, aided partly by rebounding German economic growth, as fears remain over Turkey’s currency crisis.

In initial deals, London’s benchmark FTSE 100 index of top blue-chip firms climbed 0.2 per cent to 7,660.59 points compared with Monday’s closing level.

In the eurozone, Frankfurt’s DAX 30 gained 0.7 per cent to 12,444.63 points and the Paris CAC 40 added 0.5 per cent to 5,437.43 points.

Germany’s powerhouse economy rebounded from a first-quarter slowdown to book 0.5 per cent quarter-on-quarter growth between April and June, federal statistics authority Destatis said Tuesday in preliminary data.

Tokyo’s Nikkei index jumps more than 2.2pc

AFP from Tokyo reports: Tokyo’s benchmark Nikkei index surged more than 2.2 per cent Tuesday, swiftly recovering from the previous day’s losses, with investors encouraged by an apparent hiatus in the Turkey lira crisis.

The benchmark Nikkei 225 index, which lost more than two per cent on Monday, rose 2.28 per cent or 498.65 points to close at 22,356.08, snapping a four-day losing streak.

The broader Topix index was up 1.63 per cent or 27.45 points at 1,710.95.

“Bargain-hunting spread around the market as yesterday’s sell-offs were excessive,” said Toshikazu Horiuchi, a broker at IwaiCosmo Securities.

“The yen’s decline also helped relieve Japanese investors,” Horiuchi told AFP.

But the market is unlikely to continue surging.

“Concerns that the Turkish economic worries will spread to other emerging markets are persistent,” SBI Securities said in a commentary.

Tokyo stocks faced massive selling pressure on Monday as the Turkish crisis boosted the yen on safe-haven buying, clouding the outlook for Japanese exporters.

Turkey’s central bank has launched a raft of measures aimed at soothing markets although it gave no clear promise of rate hikes, which is what most economists and analysts say are needed to ease the crisis.

On Tuesday, the lira was hovering around 6.8 to the dollar in Asian afternoon trade, compared to record lows of 7.24.

Against the yen, the greenback was changing hands at 110.92 yen compared with 110.63 yen in New York Monday afternoon.

In individual stocks, Japanese carmakers gained ground. Honda jumped 1.95 per cent to 3,336 yen as Toyota climbed 0.86 per cent to 6,864 yen with Nissan up 0.72 per cent at 1,037.5 yen.

Sony surged 1.80 per cent to 6,024 yen with Panasonic up 1.25 per cent at 1,406.5 yen.

IT investor SoftBank Group was up 3.72 per cent to 10,445 yen.

Indian rupee hits record low of 70 to the dollar

Another AFP report from Mumbai says: The Indian rupee hit a record low of 70 to the dollar on Tuesday as emerging market currencies are sold off by investors spooked by the Turkish financial crisis.

The under-pressure rupee touched 70.09 briefly during mid-morning trade as fears grow that the plight of Turkey’s lira will spread to other emerging countries.

South Africa, Argentina, Mexico, Brazil and Russia have all seen their currencies slip over the past week because, like Turkey, they remain heavily dependent on foreign capital, especially the dollar.

The rupee has been on a downward spiral throughout 2018 after starting the year at 63.67.

India is a massive net importer of oil, securing more than two-thirds of its needs from abroad.

Brent Crude was up 20 cents at $72.81 per barrel on Tuesday, well above prices of around $50 at the same time last year.

Analysts say the high crude costs are squeezing the Indian currency, making it less appealing to traders.

“Investors are concerned that the rupee has crossed the 70 benchmark today,” N. S. Venkatesh, chief executive of the Association of Mutual Funds in India, told AFP.

But he added that he expected the currency to stabilise at around 69, describing India’s economy as “strong”.

“The Reserve Bank of India’s monetary policy has shown concern for the rupee’s fluctuations so investors should not be worried by knee-jerk reactions in the forex market,” Venkatesh said.

India’s central bank has raised interest rates twice this year, in part to help increase the value of the rupee.

Its fall is leading to a widening of India’s current account deficit, when the value of imports exceeds the value of exports, experts say.

Last week, the International Monetary Fund predicted that the deficit would expand to 2.6 per cent for the 2018-2019 fiscal year.