The lira and Turkish stocks crash after Erdogan fires the central bank head as other emerging market currencies struggle


Turkey’s currency and equities collapsed after the abrupt termination of its central bank chief, a move that prompted investors to take a cautious stance toward risky assets on Monday.

The dollar USDTRY,
+ 9.98%
increased by as much as 15% against the Turkish lira, and the BIST-100 XU100 stock index,
-8.07%
It traded 8% lower after President Recep Tayyip Erdogan’s decision to replace Governor Naci Agbal with Sahap Kavcioglu, the third change at the Central Bank of the Republic of Turkey (CBRT) in two years. Last week, Turkey’s central bank raised interest rates by 2 percentage points to 19%, one percentage point higher than expected.

“With the removal of Naci Agbal from the CBRT, Turkey loses one of its last anchors of institutional credibility,” said Phoenix Kalen, strategist at French bank Societe Generale. “During his brief tenure, Agbal had succeeded where several predecessors had failed: cultivating confidence in the central bank’s inflation targeting framework, restoring monetary policy independence, encouraging international investors to re-engage with the crisis-prone Turkish narrative, in driving an 18% rally in the lira against the dollar and, more importantly, in halting and even reversing the damaging trend of dollarization in the economy. “

Movements in Turkey sent traders to safe haven currencies such as the DXY dollar,
-0.03%
and the Japanese yen USDJPY,
-0.14%,
and away from emerging market currencies, including the Mexican peso USDMXN,
+ 1.07%,
the South African rand USDZAR,
+ 0.34%
and the Russian ruble USDRUB,
+ 0.46%.

BBVA BBVA,
-5.86%,
which owns just under half of Garanti BBVA de Turkey, fell 7% in Madrid.

That caution extended to equities, where the Stoxx Europe 600 SXXP,
-0.01%
and US stock futures ES00,
+ 0.06%
they were a little higher.

Airline stocks including International Airlines Group IAG,
-4.35%,
easyJet EZJ,
-5.33%
and Ryanair RYA,
-3.77%
skidded after scientific advisers allegedly urged UK Prime Minister Boris Johnson not to lift the ban on overseas holidays. That happens when the European Union has struggled in its vaccination campaign and is now considering blocking exports of vaccines manufactured by AstraZeneca to the UK.

AstraZeneca AZN shares,
+ 1.18%,
which separately reported that its vaccine, made with the University of Oxford, was 79% effective in preventing COVID-19 and 100% effective in preventing serious illness in a US trial, increased 1.1%.

Volkswagen VOW3,
+ 5.53%
and its majority owner Porsche Automobil Holding PAH3,
+ 5.88%
They both moved forward, continuing their stellar career since VW introduced its battery and electric vehicle plans. Analysts at Deutsche Bank raised their price target for VW by 46% and Porsche by 38%. “With the global launch of the ID.4, we see a good chance that VW could outperform Tesla’s TSLA,
+ 0.26%
[battery electric vehicle] sales as early as next year, which should increase the credit given to its EV strategy, ”analysts said.

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