Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading

Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading

Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading

Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading

Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading

Categorized | Capital Markets, Currencies

Lira slides after Turkey downgrade


Posted on September 26, 2016

Turkish lira banknotes sits on the counter of a foreign currency exchange office in Istanbul, Turkey, on Friday, Oct. 30, 2015. As Turks prepare to vote this weekend, some analysts see an increasing likelihood the five-month political deadlock that roiled markets is nearing an end. Photographer: Kerem Uzel/Bloomberg©Bloomberg

Turkey’s lira dropped sharply,
stocks slid and the country’s bonds sold off as markets gave their verdict on rating agency Moody’s downgrading the country’s debt to junk.

Moody’s concerns about foreign outflows, declining foreign exchange reserves and a low growth outlook were delivered on Friday evening, by which time the lira was already weakening in anticipation of a negative rating.

The sell-off continued on Monday. The lira has slumped 1.9 per cent since Friday against both the dollar and the euro, pushing the dollar’s value close to TL3 and the euro to TL3.36.

Turkey’s Bist 100 index was down 4 per cent while a drop in 10-year government bonds pushed their yield 40 basis points higher.

    Market sentiment against Turkey helped to deflate emerging markets, pushing the MSCI EM index 1.2 per cent lower. Turkey’s downgrade was “a good reminder about political risk” for EM, said Brown Brothers Harriman.

    Markets have been reassessing Turkey since July’s failed coup — which was swiftly followed by a ratings downgrade from S&P — as investors question president Tayyip Erdogan’s commitment to reform.

    Moody’s said the current account deficit and the external liabilities of corporations, banks and government sectors amount to 26 per cent of GDP.

    “This large external funding need exposes the country to sudden shifts in investor confidence, which has been weak and volatile over the past 18 months, as reflected in the volatility of the Turkish lira (vis-à-vis the US dollar) and substantial volatility in portfolio flows,” the agency said.

    Rabobank said factors in Turkey’s favour included a substantial cut in the current account deficit in the last five years, while projections of average annual growth of 4 per cent “may also prove a valid argument to consider purchasing Turkish assets”.

    According to Citigroup, Turkey’s background macro environment “is not as bad as the markets feared” but in the medium-term fixed income and FX may remain volatile in Turkey because of the country’s looser fiscal policy stance and a likely widening current account gap.

    With two rating agencies conferring junk status on Turkey, capital outflows were likely to weigh on the lira in the short term, said Lee Hardman, MUFG currency analyst.

    But he added that a low volatile environment has built carry trade demand this year and that has helped underpin the lira even in times of political stress.

    “In this environment, the lira could continue to hold up better than expected following the downgrade to junk status,” Mr Hardman said.