Markets recover as Turkish Lira Rebounds

Financial markets showed signs of resilience following a failed coup attempt in Turkey, with the lira leading a rebound in emerging-market currencies and stocks gaining ground in Europe and Asia. Haven assets including the yen, gold and U.S. Treasuries fell.

The lira recovered more than half of its loss from Friday, when news that army officers had tried to seize power triggered the currency’s steepest slide since 2008. South Africa’s rand advanced with the Mexican peso, while the yen extended its biggest weekly decline since 2009. Turkish equities retreated from a two-month high, while the Stoxx Europe 600 Index advanced with U.S. stock index futures. Gold sank to this month’s low.

The failed putsch in Turkey came less than a week after global equities had recovered from the selloff that followed the U.K.’s June 23 vote to leave the European Union, an event that wiped almost $4 trillion off the value of the securities over two trading days. Turkish officials over the weekend sought to limit the impact on financial markets by promising unlimited liquidity to lenders and measures to support the lira.

“Geopolitical risk has reared its head again,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which manages more than $110 billion. “But it’s at least the fourth coup in Turkey since 1960 and I suspect no lasting impact on global markets.”

Hermes Asset Management is among investors seeing potential for a relief rally in Turkish assets even amid longer-term concern about the country’s political and economic situation. Rabobank and CrossBorder are predicting outflows from Turkey. Turkey’s deputy prime minister posted on Twitter that there’s “no need to worry.”

Stocks

The Stoxx Europe 600 Index rose 0.6 percent as of 8:17 a.m. London time, after surging 3.2 percent last week. The U.K.’s ARM Holdings Plc soared 45 percent after the company agreed to a $32 billion takeover offer from SoftBank Group Corp.

Turkey’s Borsa Istanbul 100 Index sank 2.7 percent, after a 6.2 percent jump last week that marked its best performance since October. Turkish Airlines tumbled as much as 6.5 percent. President Recep Tayyip Erdogan ordered reprisals after the attempted takeover by the military led to the deaths of more than 190 civilians and so far more than 6,000 people, including members of the judiciary, have been detained.

The MSCI Asia Pacific excluding Japan Index rose 0.4 percent, after surging 4.5 percent ast week. Benchmarks gained in Australia, Hong Kong and India, while the Shanghai Composite Index declined after data showed new home-price gains moderated last month in China. Markets were shut in Japan and Thailand for holidays.

Malaysia Airports Holdings Bhd., owner of Istanbul’s second-biggest airport, tumbled more than 5 percent on concern fewer people will visit Turkey following the attempted coup. Lenovo Group Ltd., the world’s biggest personal-computer maker, rallied to a two-month high in Hong Kong after a filing last week showed its chief executive boosted his stake.

Futures on the S&P 500 index rose 0.5 percent ahead of earnings from companies including Bank of America Corp., Charles Schwab Corp. and International Business Machines Corp.

Currencies

The lira jumped 2.9 percent versus the dollar, after sliding 4.6 percent on Friday. The South African rand climbed 1.9 percent, having dropped 2.4 percent in the last session as news of Turkey’s coup attempt hit emerging-market assets. Mexico’s peso rose 0.8 percent.

The yen fell 0.9 percent to 105.78 per dollar. It tumbled 4.1 percent last week as Prime Minister Shinzo Abe outlined plans for a “bold” stimulus package in the wake of an election victory.

The Bloomberg Dollar Spot Index gained 0.1 percent. It climbed 0.4 percent in the last session as U.S. reports showed retail sales rose in June by more than economists predicted and manufacturing expanded by the most since January. The odds of the Federal Reserve increasing interest rates by December more than doubled last week to 44 percent in the futures market.

Malaysia’s ringgit weakened 0.8 percent, after strengthening 2.2 percent last week. China’s yuan fell as much as 0.17 percent to its weakest level since 2010, having lost ground in all but one of the last 11 weeks.

“We’re seeing Asian currencies weaker because of the dollar,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “I’m not sure whether the Turkey situation has really stabilized and, if there’s any concern, it should be good for the dollar.”

Commodities

Crude oil was little changed at $45.94 a barrel in New York. It gained 0.6 percent in the last session as news broke of the coup attempt in Turkey, a vital conduit for oil passing from Russia and Iraq to the Mediterranean Sea.

Gold declined 0.9 percent to about $1,326 an ounce, trimming this year’s advance to 25 percent. The metal is in a major bull market and may surge to more than $1,500 as low interest rates buoy demand and the U.S. presidential election looms, according to DBS Group Holdings Ltd.

Copper fell 0.8 percent in London, extending Friday’s retreat from the highest level since April. Tin dropped 1.4 percent, slipping from a four-month high. Nickel rallied 0.7 percent amid a clampdown on polluting mines in the Philippines, the world’s largest producer of nickel ore.

Corn climbed as much as 1.4 percent in Chicago, where it’s posted declines in each of the last four weeks. Heat in the U.S. Midwest intensified over the weekend and this may damage crops, said Michael Pitts, commodity sales director at National Australia Bank Ltd. in Sydney.

Bonds

Turkey’s 10-year bonds tumbled 2.5 percent, pushing their yield up by 41 basis points to this month’s high of 9.30 percent. The rate on German notes due in a decade declined by two basis points to minus 0.01 percent.

New Zealand’s bonds advanced, pushing the 10-year yield down by one basis point to 2.35 percent, after a report showed consumer-price gains were slower than economists and the central bank forecast. There’s a 72 percent chance of an interest-rate cut at the monetary authority’s August meeting, based on derivatives prices tracked by Bloomberg.

The yield on similar-maturity U.S. Treasuries rose three basis points to 1.58 percent.

“There seems to be a reasonable resolution to the events” in Turkey, said Bill Bovingdon, the chief investment officer at Altius Asset Management in Sydney.

Source: Bloomberg