Summary:
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TRY falls as CB chief dismissed
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Erdogan once more interfering in mon. pol
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Gains in Deutsche prove short lived
The biggest mover in the FX space at the start of the week is the Turkish Lira as the currency has come back under pressure after President Recep Erdogan took the decision to dismiss Murat Cetinkaya, the country’s central bank governor over the weekend. The depreciation is not too surprising given that the reasoning behind the decision appears to be that the governor failed to cut rates and once more it seems that Erdogan is attempting to assert his influence on monetary policy. A decline of around 3% was seen in the Lira when trading resumed yesterday evening, and it seems that Erdogan remains steadfast in his unorthodox view that lower rates are necessary despite inflation running at around 15%.
USDTRY gapped up from Friday's close of 5.6258 by over 3% when the market resumed last night. Price has since pared the gains a little after making a high of 5.7885. Longer term the market remains between the 50 and 200 SMA shown by the blue and yellow lines respectively. Source: xStation
Last summer saw a major drop in the Lira, as investors became skittish after a stubborn reluctance to raise rates to curb runaway inflation alongside a diplomatic spat with the US caused a depreciation of more than a third, and while the capital controls in place should contain the downside for now, there could well be another run on the currency in the coming months - particularly if Erdogan becomes more forceful in his desire for lower rates. While this sort of autocratic news is typically the domain of emerging markets, it comes at a time when a comparable, if less dramatic, situation is developing in the US with President Trump continuing to bang the drum for lower rates from the Fed. Central bank independence is widely seen as a key tenet in allowing them to do their job properly and when it becomes clear that this is being compromised the chances of an unwanted market reaction increases markedly.
Deutsche rally on overhaul plans fizzles out
An initial move higher in the stock of Deutsche Bank after the lender revealed plans for a large scale overhaul has failed to last long, with the share price now back in the red after earlier trading up by over 2%. The firm announced over the weekend yet another major strategic shift with the considerable downsizing of the investment division which is forecast to include 18,000 job cuts as well as creating a “bad bank” and judging by the market reaction any joy at this has proved short lived. The bank has wasted little time in pressing ahead with these changes as whole teams of equity traders in Tokyo and other Asian locations were fired this morning and while a regional breakdown of the cuts has not been made public, the London and New York offices will likely take a fair chunk of the hit due to a significant amount of the roles there being linked to trading operations.
The gains seen in Deutsche Bank have already faded with a high around 7.50 now a potential resistance region. Price is up around from the start of last month but remains below the 200 day SMA. Source: xStation
