Turkish lira, shares rebound as emerging stocks near nine-month highs

There was a broad-based rebound in Turkish markets, which sold off heavily last week following the failed coup. 

Alongside the rising lira, Turkish stocks rallied 3.4 percent to put them on course for their best day in more than a month, albeit a move likely to be small consolation to investors after their 13 percent plunge last week.

Murat Toprak, FX strategist at HSBC, said the stabilization had been driven by two factors: “One is that, although the situation remains fragile, it is under control, there is no big destabilization of Turkey. Also, the global backdrop is relatively favorable.”

Supporters of Turkey’s ruling and main opposition parties rallied together in support of democracy at the weekend as Deputy Prime Minister Mehmet Şimşek also gave assurances that Turkey would adhere to the rule of law.

The yield premium paid by Turkish sovereign bonds over U.S. Treasuries on the JP Morgan EMBI Global narrowed to 327 basis points (bps) in early trading, compared with a multi-month high of 342 bps hit last week.

Turkish five-year credit default swaps also narrowed to 271 bps according to data provider Markit, having blown out to five-month highs last week.

MSCI’s benchmark emerging equity index meanwhile was up 0.23 percent, nudging the nine-month high it hit last week. The tick-up followed reassurances from G-20 policymakers at the weekend that they would use “all policy tools” to boost global growth.

HSBC’s Toprak said loose, accommodative monetary policy globally remained the primary driver of financial markets.

“The key thing we are watching is if the European Central Bank, the Bank of England, and the Bank of Japan will deliver more - we are in an environment where the market expects more loosening from central banks,” Toprak said.