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Crackdown on short selling roils Turkish money markets

  
  Analysis

The cost to borrow Turkish liras overnight more than tripled to above 1,000 per cent on Wednesday in a sign of how money markets have seized up after an apparent bid to stymie foreign short sellers.

The offshore overnight swap rate, the cost to investors of exchanging foreign currency for lira over a set period, soared to 1,200 per cent, after hitting 325 per cent, the highest level since 2001, in the previous session. It was 22.6 per cent at the end of last week, Refinitiv data show.

The rising cost highlights what some analysts say is an attempt by Turkey’s government to arrest a decline in the lira, after the currency on Friday faced its heaviest plunge since the economic crisis during the summer of 2018. It rose both on Monday and Tuesday this week. On Wednesday, it repeatedly swung lower by two per cent before repeatedly picking up — an unusual pattern that suggests systematic buying. “The stress is hard to overstate,” said one Turkey-specialist at a European bank in London.

(more…)

2-year Treasury yields hit thirteen month low as global bond yields continue to slump

  
  Analysis

Markets are still looking nervous on the week

USGG2YR

This goes in tandem to what we saw earlier when German bund yields also hit fresh two-and-a-half year lows. It’s been a rocky week for markets and European equities are more or less flat on the day with softer tones being observed since the open.
What’s particularly worrying about the move in bonds recently is how synchronised the effect is globally and the fact that front-end yields are also being dragged lower as fears of a yield curve inversion continue to rise.
It’s one thing if bond yields globally are falling because of central banks moving to a more dovish stance but it’s a whole other thing if they are falling because markets are beginning to draw a line on an economic downturn/recession risk pricing.
I reckon we’re still in the infancy phase of the latter and that there is still quite some time before markets adopt a full-on panic mode in the coming quarters. However, the thing to consider is that fear spreads like wildfire so if things escalate in the next few months, it can get real ugly real fast.
But let’s put a pin on that for the time being. For today, currencies have barely reacted despite the move in the bond market. That said, we could see more of a follow through move later in US trading so just be mindful of that.

EUR/USD stays pressured as 10-year bund yields fall to fresh 2½ year low

  
Analysis, Forex

EUR/USD trades to session lows on the day

EUR/USD H1 27-03
EUR/USD is slipping a little to start the morning as bond yields continue to track lower across the board. Germany’s 10-year bond yields have fallen to fresh lows last seen in October 2016, inching further into negative territory. Meanwhile, Treasury yields are also dipping slightly with 10-year yields down by 2.8 bps to 2.395% at the moment.

10-year bund
Once again, bonds are continuing to send a different signal to equities today and that continues to spark the debate that is brought upon as mentioned by Giles here.
As for EUR/USD, sellers are in near-term control and price looks to be headed for a further move lower at this point before things get better. Minor support around 1.1220-40 before the 1.1200 handle comes into play.

Nikkei 225 closes lower by 0.23% at 21,378.73

  
Analysis, Global Indices

Tokyo’s main index gives back some of yesterday’s gains

Nikkei 27-03
It was a bit of a mixed session for Asian equities as Japanese stocks fell while Chinese stocks are holding firm despite poor industrial profits data earlier today. That said, the Nikkei is closing near its highs for the day and we’re also seeing sentiment in US equity futures beginning to get a little better.
S&P 500 futures are now up by 0.2% as we move towards European trading. However, Treasury yields remain slightly softer and the mixed tone isn’t really lending a helping hand to currency traders so far today. USD/JPY sits near unchanged levels currently at 110.60.
I would expect European equities to view things with a glass half-full look so the open should see mild gains but nothing that should stir risk assets to rally all too much.

China industrial profits biggest fall since 2011

  
Analysis, Economy
  • (combined figures for January and February to smooth out distortions caused by the week-long China’s Lunar New Year)
If you think the result is terrible, you are right.
Reuters report that its the worst contraction since October 2011 in the first two months of this year
  • drag was mainly due to price contractions in key industrial sectors such as auto, oil processing, steel and chemical industries Zhu Hong of the statistics bureau said in a statement accompanying the data
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Meanwhile the post-RBNZ slump in AUD and NZD continues, extends:
The data from Chia is here: China data: Jan -Feb Industrial profits -14% y/y
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