What’s moving markets?

The headline news this morning is the plunge of the Turkish lira following President Recep Tayyip Erdogan’s shock decision to oust the country’s central bank chief. The currency fell as much as 15 per cent before recovering some of the losses. The decision to fire Naci Agbal, who had sought to restore the central bank’s credibility, raises concerns that the country will again prematurely ease interest rates on the direction of President Erdogan. The Turkish equity market is down close to 10 per cent as of this writing.

Despite weaker moves in other emerging market currencies, this is attributed to a stronger dollar, and not to contagion effects, as this is seen as a power play by Erdogan and is Turkey specific. The dollar has been rising on optimism that the US economy will re-open sooner than expected, as new virus cases has fallen below the 40,000 level for the first time in in a week, as cases are flattening as the vaccine rate increases.

Furthermore late-stage US trials show AstraZeneca’s vaccine is safe and 79 per cent effective with no concerns over serious blood-clotting issues currently highlighted in Europe. The benchmark UST 10 year yield has indeed been trending higher towards the 1.75 level before retreating slightly.

Over in the European opening, travel and leisure stocks are under pressure on an increase in virus cases in the region, as well as the ongoing concerns by a number of countries over vaccine safety and the speed of the vaccine rollout, with the EU and UK currently at loggerheads over the speed of deliveries. Market participants are now concerned that the prospect of a more normal summer season, crucial for the travel and leisure industry, will not materialise.

A UK minister described getaways this summer as "highly unlikely” and rumours from Germany are emerging which may also announce another four weeks of lockdown, and mandate quarantines for all people returning from a trip to another country, independently of infection rates at their travel destination.

The auto sector remains a winner, pulling the German DAX over the green line, building on the momentum last week after automakers Volkswagen and BMW announced ambitious electric vehicle plans. VW became Germany’s largest company by market cap after seeing strong gains since the start of the year.

With the major central bank meetings now out of the way, market attention over the week ahead will likely turn back to the pace of the economic recovery, with a focus on the release of the flash PMIs for March on Wednesday.

In recent months there’s been a divergence in the indicators which is set to continue, with Europe lagging behind the US, and the services sector lagging manufacturing. Indeed, the Euro Area composite PMI has been beneath the 50- mark for four successive months, whereas the US composite PMI rose to 59.5 in February, its highest level since August 2014.