LONDON, Jan 10 (Reuters) - The Turkish lira plumbed new record lows on Tuesday, weighed down by a weakening economy and destabilising militant attacks, though other emerging markets were lifted by encouraging Chinese data and a pause in the rise of U.S. bond yields.
The lira lost 1.6 percent to hit 3.77 against the dollar, having weakened 6.8 percent since the start of the year. It also passed 4 to the euro for the first time on Tuesday, with a deputy prime minister saying the economy was being targeted by “sabotage and attacks”.
Turkey’s large external borrowing requirement makes the lira one of the most vulnerable currencies to tightening by the U.S. Federal Reserve. Economic growth has remained sluggish and inflation is rising, yet the central bank is under pressure from President Tayyip Erdogan not to hike interest rates.
“Nobody wants to be the last one in there and everyone is running for the door. There are no signs from the authorities that they are taking it seriously,” said Jakob Christensen, head of EM research at Danske Bank.
A series of gun and bomb attacks have heightened security concerns. On Tuesday the Turkish parliament voted to press on with a debate about constitutional reform to strengthen the powers of President Tayyip Erdogan.
Christensen said the risk of further attacks was undermining the tourist sector, which is vital for the economy and balance of payments.
Turkish five-year credit default swaps rose four bps to 288 bps according to Markit data, a one-month high, and the yield premium paid by Turkish sovereign bonds over U.S. Treasuries on the JPMorgan EMBI Global Diversified widened out 4 bps to 377 bps.
Away from Turkey, MSCI’s emerging equity index rose 0.5 percent and other emerging assets also gained as the dollar’s rise paused before U.S. President-elect’s Donald Trump’s Wednesday news conference. He is expected to reveal details of a promised fiscal expansion which many reckon will benefit emerging markets.
There were also signs of further improvement in China’s industrial sector, with producer price inflation surging to a five-year high.
Hong Kong stocks gained 0.8 percent but Chinese mainland shares slipped 0.2 percent .
The onshore yuan firmed 0.2 percent and overnight borrowing costs for the offshore yuan eased to 6.82 percent from 14.05 percent a day earlier as authorities relaxed their grip on the market.
“Recent restrictions may have helped to contain flows and supported last week’s rally, but more outflows, albeit at reduced volumes, are likely over the coming months,” Susan Joho, an economist at Julius Baer, said in a note.
The rouble firmed 0.3 percent after oil prices steadied following big losses on Monday.
Czech crown forwards tested record highs after annual inflation reached 2 percent for the first time since 2012, opening the door for the central bank to abandon the weak crown policy it has been following since 2013.
In the new issuance market, action is picking up. Petrobras placed a $4 billion bond on Monday that attracted bids of over $20 billion. A number of other Latin American issuers have embarked on roadshows and Middle East mandates are also being announced, with Egypt planning a roadshow next week.
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Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 883.23 +4.79 +0.55 +2.43
Czech Rep 929.25 -6.47 -0.69 +0.83
Poland 2027.50 +18.31 +0.91 +4.09
Hungary 32872.17 +17.91 +0.05 +2.72
Romania 7246.55 -1.91 -0.03 +2.28
Greece 659.48 +0.15 +0.02 +2.46
Russia 1167.42 +7.15 +0.62 +1.31
South Africa 44651.60 +345.13 +0.78 +1.71
Turkey 77317.17 -77.27 -0.10 -1.05
China 3161.89 -9.34 -0.29 +1.88
India 26897.41 +170.86 +0.64 +1.02
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 27.00 27.01 +0.04 +0.02
Poland 4.37 4.38 +0.09 +0.68
Hungary 308.44 308.14 -0.10 +0.12
Romania 4.49 4.49 -0.10 +0.90
Serbia 123.54 123.58 +0.03 -0.15
Russia 59.95 60.11 +0.26 +2.18
Kazakhstan 333.00 332.01 -0.30 +0.20
Ukraine 27.10 26.90 -0.74 -0.37
South Africa 13.66 13.66 -0.01 +0.51
Kenya 103.75 103.80 +0.05 -1.33
Israel 3.84 3.84 -0.13 +0.19
Turkey 3.78 3.71 -1.71 -6.61
China 6.92 6.94 +0.18 +0.29
India 68.15 68.09 -0.09 -0.30
Brazil 3.20 3.20 -0.00 +1.77
Mexico 21.47 21.38 -0.43 -3.52
Debt Index Strip Spd Chg %Rtn Index
Sov‘gn Debt EMBIG 356 0 .03 7 47.60 1
Editing by Mark Trevelyan