NEW YORK – US stocks pushed higher yesterday as bond yields pulled back, while turmoil in Turkey and dimming prospects for a return to a pre-pandemic normal weighed on European markets.
The Turkish lira plunged nearly 15% in early trade after President Recep Tayyip Erdogan sacked the country’s market-friendly central bank chief Naci Agbal and replaced him with former ruling party lawmaker Sahap Kavcioglu.
The currency fell as low as 8.47 per dollar, having closed at 7.22 at the end of last week. It later recovered somewhat.
Turkey’s stock market tumbled nearly 10%.
Erdogan’s move has thrown the independence of the central bank into question and raised fears of a new bout of financial turbulence in the country that could have repercussions worldwide.
‘Unexpected’ Turkey shock?
“Vaccination programmes, fresh fiscal stimulus and ongoing monetary stimulus from central banks are all fueling hopes for a strong bounce back in economic output and corporate profits,” said AJ Bell investment director Russ Mould.
“But this means investors are potentially more exposed now to unexpected shocks – and Turkey could yet provide one.”
He warned that, besides a resurgence of the virus, an “old-fashioned emerging markets wobble” was another factor that could be capable of knocking markets off their stride.
While a presidential decree on Friday did not explain why Agbal had been removed, it came just a day after the Turkish central bank hiked interest rates a much more than expected two percentage points to 19% to fight inflation.
US tech stock rise
After a year-long rally, investors have been struggling to maintain the momentum as US government bond yields push ever higher – a sign that investors believe that stimulus money will spark inflation and that the Federal Reserve will be forced to raise interest rates.
But US government bond yields pulled back yesterday, lifting Wall Street stocks. The tech-heavy Nasdaq led the major indices, packing on 1.2%.
While vaccinations are picking up in Britain and the United States, investors are growing worried about Europe, where the inoculation program has stuttered and a hike in new cases has forced countries to reimpose lockdowns.
“Airline stocks are at the forefront of selling pressure due to worries about continental European economies enduring extended lockdowns,” noted analyst David Madden at CMC Markets UK.
Another missed summer travel season, which is key for earnings, would hammer airlines which are already financially weakened.
Shares in IAG, the parent company of British Airways, Iberia and Aer Lingus, plunged 6.5%. Lufthansa fell 2.9% and Air France-KLM shed 1.4%. – AFP, March 23, 2021
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