Stocks shine once again, Turkey’s lira plunges on rate cut

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LONDON/SYDNEY (Businesshala) – Wall Street was tipped for a strong open on Thursday as German and French stocks hit record highs despite major falls in energy stocks, while the day’s big losses of 100 basis- After point of interest was the Turkish lira. rate cut.

FILE PHOTO: A man wearing a facial mask, following the outbreak of the coronavirus disease (COVID-19), in front of an electric board showing stock indices of the Nikkei (top in C) and other countries, outside a brokerage in a business district in Tokyo Rises, Japan, January 4, 2021. Businesshala/Kim Kyung-hoon/File photo

A pan-European equity index hit a record high, rising 17 times over the past 10 sessions, thanks to a strong earnings season. Germany’s DAX, Switzerland’s SMI and France’s CAC 40 rose to an all-time high.

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“Money is slowly coming into the European market,” said Graham Secker, European equity strategist at Morgan Stanley.

“As concerns begin to rise about a recession and earnings season in the US and China during July, August and September, this is allowing equities to move higher,” he said.

Further gains were limited by weakness in energy stocks slumped below $80 by Brent crude futures after the United States and China indicated they could tap their fuel reserves. [O/R],

London’s commodity-heavy FTSE fell, with heavyweights Royal Dutch Shell and BP down up to 2%.

The dollar retreated from a 16-month high against a basket of currencies and US Treasury yields were flat, falling from recent three-week highs.

However, the dollar’s fall offered little respite for emerging markets, with the Turkish lira leading the way.

After its central bank slashed interest rates by 100 basis points, after 20% inflation and a year-over-year drop of nearly 30% in the lira, the currency hit a record close to 11 per dollar.

It comes on top of a 300 bps cut in recent months, as the central bank responds to President Tayyip Erdogan’s call for lower borrowing costs.

Jason Tuve, an economist at Capital Economics, said Turkey was “risking a self-fulfilling cycle because its reluctance to tighten policy leads to further sales of Turkish assets, raising inflation expectations and higher interest rates.” further increases the demand for rates”.

“The experience from 2018 is that the currency could experience an intra-day decline of more than 10%.”

The cost of insuring Turkish debt risk in the credit default swap (CDS) market rose 11 basis points to 438 bps.

Attention turned to Wall Street, with S&P 500 futures up 0.3% and futures up more than 0.5% on the tech-heavy Nasdaq.

Shares fell on Wednesday after retail giant Target warned that three-decade high US inflation was putting pressure on profit margins. Housing data also showed that an area beset by labor and material shortages [.N]

Europe’s inflationary pressures showed no sign of easing as gas prices rose 60% in November amid wrangling over the Nord Stream 2 pipeline.

The inflation-linked 10-year Bund yield was a fresh record low, while the market-based gauge of future inflation — the five-year, five-year forward inflation gauge — was just under 2%. [GVD/EUR]

Signaling a split among European Central Bank policymakers, board member Isabel Schnabel said on Wednesday that the central bank should be prepared to rein in inflation if it proves to be more stubborn than expected.

Earlier in Asia, Japan’s Nikkei closed down 0.3%. [.T] While a 5% fall in China’s Alibaba took the Hong Kong Tech Index down sharply. [.HK]

Elsewhere, the euro, which touched a 16-month low of $1.13 on Wednesday, rose 0.2% to $1.1345.

The dollar index, which measures the currency against a basket of six rivals, rose to its highest level since mid-July 2020 at 96.226 on Wednesday, but was down 0.2% at 95.654. [FRX/]

Reporting by Tom Westbrook in Sydney and Mark Jones and Sujatha Rao in London; Editing by Sri Navaratnam, Sam Holmes and Philip Fletcher

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