Turkey stock, bond markets hit by Ankara-Washington row

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Mounting diplomatic tension with the US is leaving its mark on Turkish markets.

In midday trading in Turkey, the benchmark Borsa Istanbul 100 dropped 3.1 per cent to 100,962. It would mark the worst day in almost a year, according to Bloomberg data.

Meanwhile, Turkey’s 10-year bond yield jumped 0.245 percentage points to 11.05 per cent, according to Bloomberg data, in the biggest rise since last November. Bond yields rise when prices fall.

The sharp moves, which follow a brief decline of more than 6 per cent overnight in the lira against the US dollar, come after the US suspended processing of most new visas in Turkey after authorities last week arrested a US embassy official. The decision ramps up the diplomatic row between the allies and will prevent thousands of Turks from travelling to the US.

“…the sudden spike in diplomatic tension cemented the short-term upside bias in [the dollar against the lira] underpinned by rising market expectations about a Fed hike in December and signs of progress on US fiscal reforms,” said Rabobank strategist Piotr Matys.

Turkey’s arrest of the embassy employee was the second in the past year, and comes on top of at least a dozen US citizens held on allegations of allegiance to Fethullah Gulen, a self-exiled Islamic preacher living in Pennsylvania who is accused of staging a coup attempt in 2016.

Despite the political angst, Turkey’s equities market has posted a strong performance this year, rising by almost 30 per cent. Part of the reason for the gains may be the country’s strong (although also disputed) economic statistics: Turkey’s economy expanded at 2.1 per cent quarter-on-quarter, according to official statistics. That would leave it high in the ranks of top-performing emerging markets this year.



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