EMERGING MARKETS-Lira falls after ratings cut, shots fired at U.S. embassy
By Claire Milhench
LONDON, Aug 20 (Reuters) - The Turkish lira fell on Monday after S&P Global and Moody's downgraded the country's sovereign credit rating further into junk territory and shots were fired at the U.S. embassy in Ankara, while emerging stocks rose over 1 percent.
The battered lira tumbled 1.5 percent TRY= and Turkish sovereign dollar bonds fell across the curve with some issues down as much as 1 cent, as economic and political risks continued to weigh on investor sentiment. Global cut Turkey's rating to B+ from BB- after markets closed on Friday, citing the extreme volatility in the currency and forecasting a recession next year. Moody's lowered its rating on Turkey to Ba3 from Ba2 and changed the rating outlook to negative, highlighting the weakening of public institutions and the reduction in the predictability of policymaking. Matys, a strategist a Rabobank, said the downgrades were not a major surprise and had validated concerns among market participants that Turkey was unlikely to avoid a significant slowdown, with the sharp fall in the lira posing a risk to financial stability.
The lira has lost some 38 percent of its value against the dollar this year, with the fall accelerated by a dispute with the United States over Turkey's detention of an American pastor.
On Friday a Turkish court rejected his appeal for release, drawing a stiff rebuke from U.S. President Donald Trump. to the pressure, shots were fired at the U.S. embassy in Ankara on Monday. "There is a risk that this incident may raise tensions even further," said Matys. "It's crucial how the Trump administration responds to this."
Turkish markets will begin a public holiday from midday lasting until the end of the week, which will reduce liquidity and could amplify lira volatility. One bright spot was that Qatar and Turkey's central banks signed a currency swap agreement to provide support. stocks .XU100 bucked the negative trend for Turkish assets, up 1.8 percent, but this reflected a broad-based rally across emerging equities, with MSCI's benchmark emerging stocks index bouncing 1.1 percent .MSCIEF .
Asian bourses set the tone with Hong Kong shares .HSI up 1.4 percent, Chinese mainland stocks .CSI300 .SSEC 1.1 percent and Indonesia leapt 2 percent .JKSE .
Investors are awaiting trade talks between China and the United States this week that many hope will go some way towards resolving the escalating tariff war between the two. Both are set to implement another round of tariffs on Aug. 23. yuan CNY= also firmed 0.4 percent to hit a 10-day high after 10 straight weeks of declines. at Danske Bank noted that renminbi depreciation had stalled since China pushed up offshore money market rates.
"It sends a signal that China would like to slow the CNY depreciation on the back of recent signs of rising capital outflows and possibly to not add fuel to the fire in coming trade negotiations with the U.S.," they said in a note.
"We expect the CNY to move sideways before resuming a gradual weakening against the USD on diverging monetary policy."
Indian shares .NSEI rose 0.7 percent to fresh record highs and the rupee INR= firmed 0.7 percent off a record low hit last week. bullish mood continued into the European session with Russian stocks .IMOEX up 0.8 percent, Polish shares .WIG20 up 0.9 percent and South African stocks .JTOPI up 1.3 percent.
The rand ZAR=D3 also firmed 1.2 percent against the dollar, leading currency gains.
For GRAPHIC on emerging market FX performance 2018, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see http://tmsnrt.rs/2dZbdP5
For TOP NEWS across emerging markets CENTRAL EUROPE market report, see CEE/
For TURKISH market report, see .IS
For RUSSIAN market report, see RU/RUB ) Emerging Markets Prices from Reuters
Equities
Latest
Net Chg % Chg % Chg
on year
Morgan Stanley (NYSE: MS )
Emrg Mkt Indx .MSCIEF 1034.46 +11.52 +1.13 -10.70
Czech Rep
1061.14
+3.09 +0.29 -1.58
Poland
2238.32 +20.58 +0.93 -9.06
Hungary
36436.96 -36.03 -0.10 -7.47
Romania
8199.89 +14.40 +0.18 +5.75
Greece
718.75
+8.40 +1.18 -10.42
Russia
1066.69 +13.95 +1.33 -7.60
South Africa
.JTOPI 51236.90 +635.01 +1.25 -2.47
Turkey
.XU100 90245.51 +1510.75 +1.70 -21.75
China
2698.47 +29.50 +1.11 -18.41
India
.BSESN 38307.43 +359.55 +0.95 +12.48
Currencies
Latest
Prev
Local
Local
close currency currency
% change % change
in 2018
Czech Rep
EURCZK=
25.70
25.68 -0.09
-0.67
Poland
EURPLN=
4.30
4.29 -0.11
-2.81
Hungary
EURHUF= 323.48
322.61 -0.27
-4.00
Romania
EURRON=
4.65
4.65 +0.05
+0.58
Serbia
EURRSD= 117.91
117.90 -0.01
+0.42
Russia
67.09
66.97 -0.17 -14.06
Kazakhstan
KZT=
361.07
361.37 +0.08
-7.83
Ukraine
27.68
27.74 +0.22
+1.68
South Africa ZAR=
14.46
14.64 +1.21 -14.55
Kenya
KES=
100.80
100.73 -0.07
+2.28
Israel
ILS=
3.67
3.66 -0.30
-5.22
Turkey
TRY=
6.08
6.01 -1.17 -37.71
China
CNY=
6.85
6.87 +0.35
-5.02
India
INR=
69.62
70.09 +0.68
-8.31
Brazil
3.91
3.91 -0.04 -15.34
Mexico
18.88
18.89 +0.04
+4.04
Debt
Index Strip Spd Chg %Rtn Index
Sov'gn Debt 11EML EMBIG 390
1
.01 7 68.97 1
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