Turkish assets firmer after U.S. Fed chief assurances

Janet Yellen appears before the U.S. House Financial Services Committee to give her first testimony as Fed chair. (AFP)

Turkish markets firmed slightly on Wednesday after global emerging market sentiment received a boost from the United States averting another budget stand-off for at least a year.

On Tuesday the U.S. House of Representatives narrowly approved the debt ceiling extension after Republicans caved into President Barack Obama's demands to allow a debt limit increase without any conditions.

“A possible fiscal deadlock in the United States would imply downside risks for the U.S. economy,” said Gokce Celik, analyst at Finansbank.

“Such a scenario is likely to arouse risk-off sentiment which is negative for emerging markets.”

The main Istanbul share index rose 0.93 percent to 64,880.76 points by 0932 GMT, in line with the wider emerging markets index, which rose 0.91 percent.

Emerging markets have been performing better since last month’s severe sell-off, with Turkey’s main index gaining 4.5 percent last week.

“The equity markets of developed markets cannot move higher as economic growth prospects are not good enough, while emerging markets are providing room for profitability in short trades,” said Erkan Dernek, market strategist at Odeabank.

The lira firmed to 2.1917 against the dollar from 2.1980 late on Tuesday.

The yield on the 10-year benchmark bond fell to 10.1 from 10.15 at Tuesday's close.

Yellen provides support

Turkish assets, which have benefited from an inflow of cheap foreign money from the U.S. bond buying program, were also supported by assurances that there would not be any abrupt change in the monetary policy of the world's biggest economy.

In her first public comments since becoming Fed chief earlier this month, Janet Yellen said on Tuesday that the central bank must keep its eye on the “unusually high” incidence of long-term unemployment and the “exceptionally high” proportion of Americans who can find only part-time work as it plots a tricky reversal of its very accommodative policy stance.

Emerging markets such as Turkey have experienced volatility over the past six months because of speculation over the timing and pace of the winding back of the Fed’s bond buying program.

The Fed has trimmed its monthly asset purchases by $10 billion at each of its last two policy meetings. It now buys $65 billion in Treasuries and mortgage bonds per month and it expects to shutter the program by later this year.

Turkey’s lira has also been pressured by a wide-ranging political corruption investigation that shook market confidence, knocking more than 10 percent off the currency in a month.

In a dramatic turn late last month, Turkey’s central bank stepped in to halt the currency's sharp decline, raising all of its main interest rates.

“The Turkish central bank's recent rate hike reduced currency volatility, giving relief to equity markets. Although pressures may remain, the current valuations in the market reflects the demand for Turkish assets but inflation and growth prospects should be closely watched as the pressure remains,” Dernek said.

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Last Update: Wednesday, 20 May 2020 KSA 09:41 - GMT 06:41
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