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Europe Markets: Turkish lira crumbles after S&P warns over Turkey

The beleaguered Turkish lira was crushed on Monday after Standard & Poor’s warned it may downgrade its B+ debt rating on Turkey.

One dollar
USDTRY,
+4.77%

fetched 14.3754 lira, up from 13.8769 lira. The dollar has surged an astronomic 93% against the Turkish currency this year.

S&P cited the central bank’s cutting of interest rates while inflation has been rising for the negative outlook. “In our view, the current monetary easing and significant Turkish lira depreciation will further weigh on inflation, which could peak at about 25%-30% year-on-year in early 2022. Meanwhile, we project it will also lead to net general government debt increasing by an additional 8% of GDP in 2021, compared with our previous expectation,” the agency said.

The Turkish central bank, pressured by President Tayipp Erdogan, may cut interest rates by another 1 percentage point this week. It’s already cut rates by 4 points since September.

The Turkish BIST 100
XU100,
+3.01%

stock market index rose 2.7%. Over 2021, the U.S.-listed iShares MSCI Turkey ETF
TUR,
+1.07%

has dropped 25%.

The Turkish woes didn’t extend to Continental Europe, as the Stoxx Europe 600
SXXP,
+0.66%

advanced 0.4%. Markets are in a holding period between last week’s U.S. inflation data, and this week’s key interest-rate decisions from the Federal Reserve, the Bank of England and the European Central Bank.

Strategists at UBS don’t expect the equity rally to be derailed by inflation fears. They expect global central banks to be adding liquidity through 2022, note markets have already priced in faster tightening by the Fed, and expect inflation pressures to decline next year. “We believe markets can continue take a higher inflation reading in their stride, though additional volatility remains a risk,” they said.

Of stocks on the move, Vifor Pharma
VIFN,
+14.01%

rose 15% after confirming acquisition talks with Australia’s CSL, though no decisions have been made.

Telecom Italia
TIT,
+3.88%

rose 4% after an Italian newspaper report that KKR could proceed with its takeover bid without the company allowing due diligence.

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