Turkey’s lira tumbles, Emerging market stocks snap 4-day winning streak

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By Claire Milhench

LONDON Jan 27 (Reuters) – Turkey’s lira fell 1 percent on Friday amid fresh concerns over its central bank policymaking and ahead of a key ratings review from Fitch, while emerging stocks snapped a four-day winning streak, retreating from a three-month high.

MSCI’s benchmark emerging equities index fell 0.4 percent after hitting a three-month high on Thursday, but was still on course to end the week up over 2 percent. Trading was thin, with much of Asia closed for the Lunar New Year holidays.

Currencies struggled as the dollar recovered. Turkey’s lira, already down over 9 percent this year, came under more pressure ahead of a potential downgrade to “junk” by Fitch Ratings, which currently has Turkey on BBB-, the lowest investment grade. Moody’s and S&P Global have already cut Turkey to non-investment grade.

Adding to the Lira’s woes, Turkish President Tayyip Erdogan said he favoured the use of a single central bank policy rate and doing away with the interest rate corridor used to set policy. A modest interest rate rise this week failed to put a floor under the lira.

“There is still likely to be currency weakness as the market worries about what (a ratings move) means for the banking sector,” said Phoenix Kalen, director of emerging markets strategy at Societe Generale.

“(Erdogan) is making the environment even more uncomfortable for the central bank to operate in and placing more pressure on the central bank’s credibility,” Kalen said.

Turkish 5-year credit default swaps widened out 3 basis points from Thursday’s close to 276 basis points, according to Markit data.

The Mexican peso steadied after sliding on Thursday following the White House floated the idea of a 20 percent tax on Mexican imports, and was on course to end the week down 1.6 percent.

President Donald Trump’s vow to renegotiate the North American Free Trade Agreement with Mexico and Canada has shaken the Mexican economy, which ships 80 percent of its exports to the United States.

“The diplomatic feud between the U.S. and Mexico bears substantial risks for Mexico and its economy that is still in the process of consolidation,” said Simon Quijano-Evans, emerging markets strategist at Legal & General Investment Management.

“It also risks spilling over into neighbours that are very much dependent on both the U.S. and Mexico.”

The South African rand slipped 0.6 percent, hampered by weaker precious metals prices, but the Russian rouble bucked the trend, firming 0.4 percent after suffering its biggest one day drop this year on Thursday.

The rouble has been clobbered by the finance ministry’s plans to start buying foreign currency in February as part of an effort to shield the economy from oil price swings.

Emerging Europe delivered a mixed performance, with Polish shares down 0.6 percent after striking a 15-month high on Thursday.

The Hungarian forint slipped 0.2 percent against the euro, still pressured by the central bank’s dovish policy guidance from its meeting on Tuesday.

For GRAPHIC on emerging market FX performance 2016, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2016, see tmsnrt.rs/2dZbdP5

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 913.02 -3.71 -0.40 +5.89

Czech Rep 937.84 -0.24 -0.03 +1.76

Poland 2073.14 -7.26 -0.35 +6.43

Hungary 32905.17 -13.30 -0.04 +2.82

Romania 7462.25 +60.53 +0.82 +5.32

Greece 644.53 -16.06 -2.43 +0.14

Russia 1173.09 +9.47 +0.81 +1.80

South Africa 46260.44 -237.06 -0.51 +5.37

Turkey 83957.43 +130.89 +0.16 +7.45

China 3159.17 +9.61 +0.31 +1.79

India 27881.35 +173.21 +0.63 +4.71

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2017

Czech Rep 27.01 27.01 +0.00 -0.01

Poland 4.34 4.34 +0.02 +1.44

Hungary 311.55 310.86 -0.22 -0.88

Romania 4.50 4.50 -0.18 +0.70

Serbia 123.89 123.90 +0.01 -0.44

Russia 60.06 60.37 +0.52 +2.00

Kazakhstan 327.70 328.60 +0.27 +1.82

Ukraine 27.19 27.16 -0.10 -0.69

South Africa 13.41 13.35 -0.43 +2.41

Kenya 103.90 103.90 +0.00 -1.47

Israel 3.80 3.79 -0.17 +1.43

Turkey 3.88 3.84 -1.03 -9.14

China 6.88 6.88 +0.00 +0.96

India 68.09 68.17 +0.11 -0.21

Brazil 3.18 3.18 +0.00 +2.38

Mexico 21.22 21.21 -0.02 -2.37

Debt Index Strip Spd Chg %Rtn Index

Sov’gn Debt EMBIG 349 -1 .00 7 47.76 1

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