Singapore markets will likely be wary on Monday, with the potential to extend Friday’s selloff on concerns over Turkey and the huge drop in its currency.
“The talk on the desk and among the wider trading community is firmly on Turkey, and whether Turkish President Erdogan and Finance Minister Albayrak can get on the front foot to an extent and stop this juggernaut that is Turkish lira selling,” Chris Weston, head of research at Pepperstone, said in a note on Monday.
Last week, Turkey’s lira tumbled as U.S. President Trump escalated a dispute with the country, in part over an American on trial there for alleged support for a failed 2016 coup; Trump last week authorized new tariffs on imports from key NATO ally Turkey, Reuters reported. The tumble in the lira has spurred concerns about whether Turkish companies will be able to pay their non-lira-denominated debts and over whether European banks might have exposure to any blow up.
“After a monster sell-off last week in the lira and a renewed focus on what is effectively a balance of payments crisis, the focus remains around what lasting measures can be implemented and whether or not there will material impact to European financial institutions,” Weston said. “Certainly, the latter issue has been truly brought onto the radar by the European Union’s financial watchdog, who have expressed concern about EU financial exposures to Turkey. And so, if it is a concern for this institution, then it should be for traders too.”
Japan’s Nikkei 225 index was down 0.82 percent in early Monday trade after ended Friday down 1.33 percent.
The Straits Times Index fell 1.26 percent on Friday to 3284.78; STI futures for august were at 3265 on Friday, while futures for September were at 3267.
The Dow Jones Industrial Average ended Friday down 0.77 percent at 25313.14, the S&P 500 fell 0.71 percent to 2833.28 and the Nasdaq lost 0.67 percent to 7839.11.
The dollar was fetching as much as 7.2149 Turkish lira early on Monday, up from Friday’s high of 6.8010, and sharply above the levels under 5.0 at the beginning of August, according to DZHI data.
“Unless we see something akin to massive interest rate hikes from the Turkish Central, which makes shorting the lira grossly expensive, or something tangible on a fiscal level, then traders will buyer every pullback in dollar/lira,” Weston said. “That said, if trading the lira, you have to have a very strong stomach, and position sizing must be kept to a minimum. A currency pair that can move 10 percent in a day or 60 percent since late July must be respected.”
The dollar index, which measures the buck against a basket of currencies, was at 96.35 at 7:40 A.M. SGT, after having touched its highest levels since around June 2017. It was broadly flat with Friday’s level, but up from levels around 95.0 early last week.
The euro/dollar was at 1.1391 at 8:04 A.M. SGT, compared with Friday’s range of 1.1386 to 1.1537, with the euro sharply weaker from levels as high as 1.1628 last week amid the Turkey turmoil, according to DZHI data.
The dollar/yen was at 110.624 at 8:06 A.M. SGT, compared with Friday’s 110.49 to 111.17 range, as the safe-haven yen slowly gained last week after the pair traded above 112 earlier in August, according to DZHI data.
The Singapore dollar also lost ground. The dollar/Sing was at 1.3744 at 8:10 A.M. SGT, after trading in a 1.3655 to 1.3738 range on Friday, off levels as low as 1.3612 last week.
The dollar/yuan was at 6.8457 at Friday’s close, according to DZHI data.
The U.S. 10-year Treasury note yield was at 2.869 percent at 8:13 A.M. SGT, compared with levels as low as 2.857 percent on Friday.
Nymex WTI crude oil futures for September were up 0.27 percent at US$67.81 a barrel at 8:01 A.M. SGT, while ICE Brent crude futures for October were up 0.12 percent at US$72.90 a barrel, according to Bloomberg data.