As Emerging Markets Head One Way, Turkey Lira Goes the Other

(Bloomberg) — The last time Turkey’s lira was so out of step with other emerging-market currencies, Recep Tayyip Erdogan had just come out of prison and was trying to gain a foothold in national politics.

That was 1999. After two decades of the kind of fast-paced growth typical of developing nations, the risks from President Erdogan’s stewardship have set the currency on a divergent path to its peers. Issues including central-bank independence and potential U.S. sanctions are eclipsing global themes such as Federal Reserve policy that dictate the route for other emerging markets.

“Domestic and international factors suggest this divergence between average emerging-market performance and the specific performance of the lira will continue,” said Cristian Maggio, head of emerging markets at TD Securities in London. “Perhaps one of these factors can be overlooked. But when you have many such factors together, lasting for a long time, then it weakens the general understanding of Turkey as a fairly resilient economy.”

The 30-day rolling correlation between the lira and the Currency Index is the most negative in 20 years, according to data compiled by Bloomberg. That’s not all: while the correlation shows the frequency with which the two assets move in the same direction is declining, the magnitude of shared moves is also changing.

The Turkish currency is showing a beta of minus 0.173 with the MSCI gauge this quarter, compared with 1.05 over the past 10 years. That means a one-percent gain in the index results in a slight loss for the lira. In the past decade, both moved in lockstep.

Unique Risk

Stress in the Turkish economy built up between 2016 and 2018 when the central bank was seen as too slow to raise interest rates given a deepening of the current-account deficit. The demand for dollar funding from the government, companies and citizens added to the stress on the lira.

According to Maggio at TD Securities, the proliferation of political tension — from geopolitical skirmishes in the region to a controversial purchase of Russian missiles — sets Turkey apart as a unique risk in emerging markets, justifying the negative correlation.

The concerns driving other developing currencies are more global. The U.S.-China trade war has undermined growth and contributed to persistent strength in the U.S. currency. Central banks are reaching the limits of accommodation as interest-rate cuts prove ineffective in reviving growth.

Another factor that has helped separate the lira from the rest of the EM herd is its recent period of unusual calm.

After the last bouts of turbulence, authorities took steps such as tightening liquidity in offshore money markets to curb the currency’s swings. The result is that the lira has traded in a narrow range since June, despite 1,000 basis points of cuts in the benchmark interest rates, the ouster of a central-bank governor and a military incursion into northern Syria that worsened Turkey’s relationship with the U.S.

The MSCI EM currency gauge has risen 1.3% this year, while the has declined 9%.

(Updates the beta figure in the fifth paragraph)

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Forexlive Americas FX news wrap: A blow away employment report puts the markets in a holiday mood

Forex new for NY trading on December 6, 2019

In other markets, 

  • Spot gold is down -$ 16.32 or -1.11% at $ 1459.73
  • WTI crude oil is up $ 0.72 or +1.22% at $ 59.15

The markets were treated to an early holiday present (and Pres. Trump too) when the November employment report came out much stronger than expectations.

  • Nonfarm payroll rose by 266K well above the 183K estimate and well above the ADP report of 67K.
  • The prior month revised up by 41K. 

The combination is a 305K gain all in.  

Ho! Ho! Ho! 

The rest of the report was not bad either with average hourly earnings year on year rising by 3.1% and the unemployment rate falling to 3.5%. (estimate 3.6%).  

The cherry on top later came in the form of a sharp rise in the University of Michigan sentiment index for December. It rose to 99.2 from 96.8 last month and 97.0 estimate.  

Ho! Ho! Ho!.

The data helped to push stocks higher. The final numbers showed:

  • S&P index, +0.91%
  • NASDAQ index, +1.0%
  • Dow industrial average, +1.22%

Given the sharp declines earlier in the week, the gains today were still not strong enough to dig the Dow and Nasdaq out of the red for the  week (they fell by -0.13% and -0.1% respectively) but the S&P did close the week with a small gain of +0.16%. Sometimes a small loss is still a great result.  

Not all was great in the jobs market around North America. As good as the US report was, the Canadian report was the exact opposite. In fact, it was more of a Bah Humbug report (-71K in net job change and the unemployment rate spiked to 5.9% from 5.5%).  

The combination sent the loonine tumbling lower. It was the weakest of the major currencies in trading today (see the ranking below). 

Forex new for NY trading on December 6, 2019

As a result of the contrasting jobs numbers, the USDCAD rose by 0.59% on the day. That  move saw the pr him himice move from a pre-report low of 1.3153 to a high of 1.3269 where the price ran into the 200 hour MA (the MA was at 1.3265 at the time).  The afternoon trading slowed the trend down and the pair is closing at 1.3250 area. In the new week. if the price is to continue higher, gettting back above the 200 hour MA and then the 200 day MA at 1.32778 will be the next key hurdles. 

The EURUSD was another big mover vs the USD today. It fell from a pre-release high near 1.1100, through its 100 day MA at 1.10647 and 200 hour MA at 1.10477. The low stalled at  1.1039 and retraced back above the 200 hour MA at 1.10477 – closing at 1.1055.  In the new week, the 100 day MA above at 1.10647 is topside resistance and the 200 hour MA at 1.10477 is support.  A break outside of either of those extremes will help dictate the next directional move.

A bit of a surprise was the price action in the USDJPY today. At first the USDJPY moved sharply higher on the report with the price spiking from around 108.50 to 108.918. That took the price back above the 200 day MA at 108.826.   Howver, the momentum could not be sustained despite the higher stocks and modestly higher yields ( 2 year up 2.2 bps and 10 year up 2.6 bps today).  When the price started to trade back below the 200 day MA, buyers turned to sellers and the price ending up retracing all the way back to the 108.50 start point.  That puts the shorts more in control in the USDJPY to end the week (with risk at the falling 100 hour MA at 108.767 and the 200 day MA at 108.826).

The USDCHF moved higher  and is closing above its 100 day MA and 100 hour MA at the 0.9886 area.  

So Ho! Ho! Ho! for the US and Bah Humbug! for the Canadians today.

Wishing you all a happy and safe weekend. 

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Asian markets tread water as investors await clues on trade

By Stanley White

TOKYO (Reuters) – Asian shares were little changed on Wednesday as investors awaited new developments toward scaling back a bruising trade war between the United States and China.

MSCI’s broadest index of Asia-Pacific shares outside Japan was unchanged. Australian shares () were up 0.14%, while Japan’s Nikkei stock index () rose 0.35%.

Treasury yields fell slightly in Asia and crude oil futures also dipped as some investors started to temper their optimism about progress in the trade dispute in the absence of concrete progress in negotiations between the world’s two-largest economies.

The dollar held onto overnight gains against the yen and the euro after better-than-expected data on the U.S. services sector, but some analysts warn it will be difficult to shake lingering concern about the global economic outlook.

“We’ve had a good run-up, but there may be some consolidation,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.

“The trade war is the biggest reason that global growth has weakened over the past 18 months. We would like to see tariffs scaled back. We’re still waiting for clearer signs of a resolution.”

U.S. stock futures () edged 0.05% lower on Wednesday in Asia after the S&P 500 fell 0.01% on Tuesday, having reached a record high in the previous trading session.

The United States and China have signaled they are pushing hard to reach a preliminary “phase one” trade agreement, possibly some time this month.

Traders and investors hope this will roll back at least some of the punitive tariffs that Washington and Beijing have imposed on each other’s goods, but it is still uncertain when or where U.S. President Donald Trump will meet Chinese President Xi Jinping to sign the agreement.

Treasury prices rose slightly in Asia, recovering from a sell-off on Tuesday after data from the Institute for Supply Management (ISM) showed the U.S. services sector expanded more than expected in October.

The yield on benchmark fell to 1.8495% in Asia on Wednesday, while the two-year yield fell slightly to 1.6185%.

A jump in oil prices overnight also faded in Asian trading.

U.S. crude () fell 0.35% to $ 57.03 per barrel.

In the currency market, however, the dollar continued to benefit from the positive ISM data.

The dollar, which traded at 109.16 yen , close to its highest since Aug. 1. The greenback also traded at $ 1.1075 per euro (), approaching its highest level since Oct. 16.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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‘Deja vu’: Argentina braced for new round of debt talks with markets stalled

© Reuters. People walk past a screen showing currency exchange rates at a currency exchange shop in Buenos Aires © Reuters. People walk past a screen showing currency exchange rates at a currency exchange shop in Buenos Aires

By Cassandra Garrison

BUENOS AIRES (Reuters) – Argentine markets held steady on Friday morning at the end of the first business week since voters chose a new left-wing government, as investors watched for signs about future economic policy and plans for crunch debt talks with creditors.

With few signals from President-elect Alberto Fernandez, the country’s peso currency and bonds have been trapped in limbo, while international holders of Argentine debt have been in Buenos Aires for talks amid fears of default.

In a playful moment on Friday, Guillermo Nielsen, a key economic advisor to Fernandez who previously led fraught negotiations with Argentina’s creditors in 2005, tweeted a photo from his office alongside a major German investor.

“Deja vu? Estefan Engelsberger in my office now,” Nielsen tweeted, referring to an investor who had led a group of European creditors in previous talks, and became well enough known to have his own cartoon character in Argentine newspaper Clarin.

Nielsen led the debt talks under the administration of former President Nestor Kirchner and is now an economic adviser to Fernandez. He is expected to play some role negotiating the restructuring of some $ 100 billion in sovereign debt.

In an interview published on Friday with Argentine news website Infobae, Englesberger said he was here to offer his help to the Fernandez government in upcoming negotiations with the International Monetary Fund, which agreed to a $ 57 billion financing program with Argentina in 2018.

In the markets, Argentina’s peso edged down to 59.95 per dollar, capping off a mostly steady week under stricter currency controls and heavy central bank invention to steady the rickety currency.

The black market peso was 1.47% stronger in morning trading, to 68 per dollar, traders said.

Fernandez, who has named a transition team but not yet his key picks for top economic posts, was scheduled to travel to Mexico on Friday and return next week, in his first foreign trip as president-elect.

He defeated business-friendly President Mauricio Macri in an election on Sunday to set Argentina back on a left-wing path.

Argentina’s central bank was also set to auction another $ 50 million at a rate of 59.99 pesos per dollar, traders said on Friday. The central bank has been draining its foreign currency reserves with regular interventions in the foreign exchange market to defend the peso since Fernandez heavily won an Aug. 11 primary election.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Turkish Markets Rally as Erdogan Clinches Syria Deal With U.S.

© Reuters.  Turkish Markets Rally as Erdogan Clinches Syria Deal With U.S. © Reuters. Turkish Markets Rally as Erdogan Clinches Syria Deal With U.S.

(Bloomberg) — The jumped to its strongest level in almost two weeks while bonds and stocks rallied after the U.S. agreed not to impose any further sanctions on Turkey as part of a temporary cease-fire deal in Syria struck between Ankara and Washington on Thursday.

The currency gained as much as 1.3% to 5.7585 per dollar, erasing losses that were fueled in recent days by concern Washington would impose punitive measures against the Turkish economy in response to the offensive against Kurdish rebels in Syria.

The benchmark stock gauge jumped almost 4% at the open, its biggest advance since June. The yield on five-year benchmark bonds dropped more than 160 basis points, falling below 15% for the first time in a week.

“The truce deal, even a temporary one, fueled optimism among investors that the risk of sanctions has diminished significantly,” said Can Oksun, senior manager of institutional sales at Global Securities in Istanbul. “The mood is broadly more positive.”

The agreement enshrines Turkish control of a 20-mile deep “safe zone” in northern Syria, representing a victory for President Recep Tayyip Erdogan, who had been seeking one for years. The U.S. has also promised to withdraw sanctions announced earlier this week once a permanent cease-fire takes effect.

‘Brutal’ House Bill

Still, risks remain. Republican and Democratic lawmakers have vowed to move ahead with sanctions despite Thursday’s announcement. The measures would penalize Turkish leaders, financial institutions and its energy sector, as well as prohibit any U.S. firms or individuals from buying the country’s sovereign debt.

“If this bill holds as is and is passed it would be brutal,” said Timothy Ash, a strategist at BlueBay Asset Management in London. “Sanctioning sovereign debt would be lights out for Turkey, given it has $ 180 billion in short-term external debt to finance every year.”

While there is strong bipartisan opposition to Turkey’s incursion into northern Syria, Senate leaders haven’t committed to bringing a sanctions bill to a vote.

The lira was trading 0.9% stronger at 5.7803 per dollar as of 10:53 a.m. in Istanbul. The Borsa Istanbul 100 Index trimmed its advance to 3.5%, with gains being led by Turkiye Garanti Bankasi AS and Akbank TAS, the nation’s largest listed lenders.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Heads up: It will be a long weekend for some markets

Monday will be a holiday in the US, Canada, and Japan

Both the Canadian and Japanese markets will be closed entirely but some US markets will be open, notably the NYSE and NASDAQ. That means while certain financial institutions are closed, the stock market will still be running as per usual.

That said, we may observe lighter liquidity in trading as a result.
ForexLive

Just a bit of a heads up before we head into the hustle and bustle involving US-China trade talks later on in the day.

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Forexlive Americas FX news wrap: Lowest ISM Non-Mfg data in 3 years shocks markets, then it doesn’t

Forex news for NY trading on October 3, 2019

In other markets near the close, the snapshot is showing:

  • Spot gold is up at $ 7.18 or 0.48% at $ 1506.60 
  • WTI crude oil futures are down $ 0.35 or -0.68% at $ 52.28 
  • Bitcoin on Coinbases looks to close for the 8th time below the 200 day MA at $ 8467.93. The digital currency is currently trading down about $ 80 at $ 8151.
Today, the 2nd shoe fell from the ISM data.  On Tuesday, the ISM Manufacturing index came in much weaker than expected (10 year low). Today, the ISM nonmanufacturing index also came in weaker. In fact, it was the lowest level in 3 years.  Dualing bad numbers from the ISM data. 

Moreover, the manufacturing employment number came in at 46.3 versus 47.4 in the prior month. For the non-manufacturing data today, the employment component stayyed above the 50 level but only barely at 50.4 versus 53.1  last month. It was the lowest level since Feb 2014.  

The US employment statistics will be released tomorrow at 8:30 AM ET with the expectations for nonfarm payroll to rise by 148K vs 130K last month.  The unemployment rate is expected to remain steady at 3.7% and average hourly earnings are expected to rise by 0.3% or 3.2% year on year.

The weaker numbers likely have traders thinking something on the lower side tomorrow. Time will tell of course. 

The initial reaction was similar to the manufacturing release:

  • Stocks tumbled
  • Yields tumbled
  • Gold moved higher
  • The USD moved mostly lower

However, the shock wore off quickly – that is, the market realized that a Fed ease is looking more and more likely for October. So although the Nasdaq index moved below its 200 day MA at 7713 (the low extended to 7700.00 – a nice round number), the break to new lows was quickly reversed and the squeeze was on.   

The major stock indices closed at highs for the day, with the Nasdaq moving to 7872.26 at the high. That is a 172 point reversal in that index. Not too shabby.  

The S&P has similar rebounds. Below are the low to high % changes.  

Forex news for NY trading on October 3, 2019.Yields tumbled off the data but it did not rebound. Although stocks can cheer a more dovish Fed and rally on that, the US debt market had no reason to recover from the tumble lower.   Earlier this week, the expectations for a October cut was around 40%. The current estimate implied by the Fed funds futures is for a 87.3% chance were cut.  Hence 2 through 30 year yield remained lower.  The yield curve represented by the 2-10 year spread continue to widen. It is up to for 14.78 basis points. It close at 12.12 basis points at the end of trading yesterday.   
US yields are sharply lower

In the forex, the dollar fell sharply vs the major currencies immediately after the ISM data was released. 

The EURUSD moved from 1.0958, to just below the 1.1000 level (the high reached 1.09988).  The 1.1000 level was also home to the 61.8% retracement of the move down from the September 18 high. The natural level of resistance along with the retracement, give sellers something to lean against, and the price spent the rest of the day wondering back to the downside. The pair returned to a swing area at the 1.0964-67 area near the close. That area was home to swing lows on September 23, swing highs on September 26, a swing high yesterday, and earlier in the session today (before the break higher).  It will be the closest barometer for bulls and bears into the new trading day. Stay above is more bullish. Move below and rotation back toward the 200 hour moving average at 1.09488 might be in order before nonfarm payroll is released tomorrow.

The GBPUSD also move sharply higher running from 1.2319, up to and through the 200 hour moving average at 1.2345, and the 50% retracement of the move down from the September 20 high at 1.23921. The price stalled at 1.24125.  An hour or so later, the price moved back below the 50% retracement level and the buyers started to take more profit (helped by the rising stocks).  The pair near the close is trading back by its 200 hour moving average at 1.2345. Like the swing level in the EURUSD, the 200 hour moving average will be the barometer for bulls and bears in the new trading day.

The USDJPY fell below support at the 106.92 level (38.2% retracement of the move up from the August 26 low) the release of the data and fell toward the 50% retracement at the 106.451 level (the low reached 106.477).  The price rebounded but only back up to the 38.2% retracement level at the 106.92 area.  Trade above that level in the new day will be more bullish.  Stay below is more bearish.  

The AUDUSD moved above its 200 hour MA at 0.6746, but could not stay above. The run above was the first hourly close since September 18. The high price reached 0.6752, before moving back down. The pair is closing at 0.6740. It will take a move back above the moving average to solicit more buying in the new trading day.  

The USDCAD – a day after trading above a 13 day consolidation high at the 1.3304 to 1.3309 area, saw the price move down to retest that level on the weaker ISM, but stall at the area (The low reached 1.3308).  The pair is trading at 1.33419 at the close which is just below the high for the day at 1.33471. The buyers will maintain control above the 1.33039 area going forward.  This month, Canada will not release their employment report in tandem with the US (but will release it next week).  

To the Asian session traders, thank you for your support. Wishing you all a happy and safe weekend. 

The strongest and weakest currencies in trading today

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ICYMI – China markets are closed again today

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Trade optimism pressures yen but markets wary ahead of Fed, BOJ

By Stanley White

TOKYO (Reuters) – The yen was pinned near a six-week low versus the dollar on Friday as signs the United States and China were narrowing their differences over trade ahead of key talks decreased demand for safe haven assets.

That nudged the yuan up to near four-week highs against the U.S. currency in offshore trade, while the euro held steady after swinging wildly on Thursday following the European Central Bank’s surprise decision to resume government debt purchases from November to support a flagging economy.

In the very short-term, guarded optimism about a resolution to the U.S.-China trade war should continue to push Treasury yields higher and weigh on safe-haven currencies.

However, this confidence could be short-lived as the U.S. Federal Reserve is widely expected to cut interest rates next week while the ECB’s easing places pressure on the Bank of Japan to follow suit.

“We’ve managed to scale back our pessimism about U.S.-China trade talks, which is a supportive factor for now,” said Takuya Kanda, general manager of research at Gaitame.com Research Institute in Tokyo.

“Once we start to focus on the Fed’s rate cut, perceptions of the market will change. Treasury yields and dollar/yen look to be too high and are likely to start drifting lower.”

The dollar rose to 108.265 yen , the highest since Aug. 1.

The greenback was up 1.2% versus the yen this week, on course for its best weekly performance since November 2018.

The dollar has also drawn support from a spike in U.S. Treasury yields, with the benchmark 10-year yield at a five-week high.

U.S. President Donald Trump said on Thursday he would not rule out an interim trade pact with China.

The two sides are preparing for new rounds of talks aimed at curbing their trade war, which has dragged on for more than a year, roiling financial markets and threatening to push other economies into recession.

The yen, widely considered a safe-haven currency, tends to rise during times of heightened economic or market stress and vice versa.

China’s financial markets were closed for a public holiday on Friday. In offshore trade, the yuan rose 0.3% versus the dollar to 7.0459, the strongest since Aug. 19.

Sterling was up 0.3% on the dollar this week, on course for its second week of gains after the British Parliament moved to block a so-called no-deal exit from the European Union.

The pound remains vulnerable, however, given the continuing uncertainty over how lawmakers will decide the terms of the UK’s divorce from the EU.

The euro () held steady at $ 1.1068, on course for its second weekly gain against the dollar.

The single currency initially tumbled on Thursday after the ECB cut its deposit rate by 10 basis points to a record low of minus 0.5% and said it would restart bond purchases at a rate of 20 billion euros a month from Nov. 1.

The rate cut was widely expected, but the revived bond purchases were a surprise. Still, the euro managed to claw back losses as the ECB’s comprehensive stimulus package now shifts the spotlight to the Fed and BOJ policy meetings next week.

Financial markets have fully priced in a rate cut at the Fed’s Sept. 17-18 policy meeting. Most economists expect additional monetary policy easing in October and December.

The Fed cut rates in July for the first time since 2008.

Trump has publicly criticized the Fed for not cutting rates more aggressively, but positive economic data has cast some doubt on the need for extensive easing.

The BOJ is also brainstorming ways to deepen negative interest rates at minimal cost to commercial banks, as it considers adopting it as a main policy response to a slowing economy, sources familiar with the bank’s thinking said.

The BOJ’s next policy decision is due Sept. 19.

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