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The Turkish lira squeeze - EMEA Brief 28 Mar

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  • Gold prices edged higher after falling on Wednesday. Globally declining treasury yields could increase demand for the yellow-metal if a stock rout were to take place. Spot contracts hit $1311.54 at 6:00am GMT on the IG Web Trading Platform. 
  • Palladium slumped 6% on Wednesday on concerns of slowing demand from the automotive and electronic appliances sectors. Slowing global growth could drown the metal, which hit a record $1620.52 last week.
  • Oil slumped on Wednesday on reports that US inventories rose by 2.8 million barrels last week, exceeding expectations. Brent Crude May futures dropped 0.5% in just one hour after the report at 14:30 GMT. Crude is under additional downward pressure since Monday following a yet unresolved power blackout in Venezuela’s main oil export port of Jose. Oil prices have risen more than 25% this year, supported by supply curbs by OPEC+ and US sanctions on exports from Venezuela and Iran.
  • The Turkish lira funding went out of the roof on Wednesday with lenders totally vanishing and swap rates touching 1000%. The funding crisis was prompted by a government measure that prevents banks from facilitating deals and reinforced by reports last week that the TCMB has drawn billions of dollars in foreign exchanges in March. Turkish equities dropped to their lowest since July.
  • The Pound fell yesterday, following Theresa May’s announcement that she’ll resign as Prime Minister if her deal is passed. If she won’t get her deal through parliament by Friday, the UK will be forced to either crash out of the EU without a deal or potentially be granted more time and prolong the Brexit bleeding.

Asian overnight: Equities in Asia dropped on concerns over the decline in developed-market treasury yields. The worst performer was Japan’s Topix Index which dropped 1.6% as of 1.46pm in Tokyo while South Korea’s Kospi index fell 0.6%. Yields on Japan’s 10-year sovereign bonds fell to levels last seen in 2016, which prompted a decline in shares that led to declines in the whole region that were quickly recovered. The yen traded higher against major currencies and might benefit more thanks to its safe-haven appeal.

UK, US and Europe: The UK parliament failed to break the impasse, with yesterday’s indicative votes failing to find a single form of Brexit that held a majority of support. We remain within consolidation mode, as the chances of both no-deal and a second referendum rise. All eyes will be on Theresa May, who yesterday promised that she will step down should parliament vote for her deal. Time is running out for her to bring that deal back for a third time, with Bercow standing in the way of it even being called once more. Kee an eye out for whether we do see her find a way to call that third vote. However, without the DUP support, it is effectively dead despite the shift from a number of ERG members. Also this morning, traders will be watching for the German CPI figure, with the final US GDP figure dominating the afternoon. 

South Africa: Emerging market currencies have come under pressure with Turkey now looking to intervene in their currency market. The Rand will be finding some further short term apprehension ahead of this afternoons rate announcement, although perhaps more importantly tomorrows credit rating review from Moody's Investor Relations. Tencent Holdings is down 0.5% in Asia, suggestive of a soft start for major holding company Naspers. BHP Group is up 0.6% in Australia suggestive of a positive start for local miners.

Economic calendar - key events and forecast (times in GMT)

Econ Cal 28 Mar.PNG

Source: Daily FX Economic Calendar

Corporate News, Upgrades and Downgrades

  • Meggitt has won a $37 million contract to provide cooling and power systems for the US Army’s Abrams tank programme. 
  • Derwent London said that the Brunel office space in Paddington was now fully pre-let ahead of its completion. 
  • Debenhams reported that its bondholders had agreed to change the terms of some of their bonds so that it can secure new loans of up to £200 million from existing lenders. 

BAT upgraded to buy at Citi
CYBG upgraded to equal-weight at Barclays
Imperial Brands upgraded to buy at Citi

CTS Eventim downgraded to hold at Baader Helvea
KWS Saat cut to hold at Kepler Cheuvreux
Swedbank Downgraded to Hold at Handelsbanke

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