SYDNEY- Asian markets turned mixed and bonds bounced on Monday as a plunge in the Turkish lira sparked talk that capital controls might be needed to stem the rout, though the wider fallout was relatively restrained for the moment.
The dollar was trading 12 percent higher versus the lira at 8.0500, but that was off an early peak of 8.4850 amid speculation Turkish authorities would have to intervene.
The slide came after President Tayyip Erdogan shocked markets by replacing Turkey’s hawkish central bank governor with a critic of high interest rates.
“The authorities will be left with two choices, either it pledges to use interest rates to stabilize markets, or it imposes capital controls,” said Per Hammarlund, senior EM strategist at SEB Research.
“Given the increasingly authoritarian approach that President Erdogan has taken, capital controls are looking like the most likely choice.”
The uncertainty saw Japan’s Nikkei fall 1.8 percent, partly on speculation Japanese retail investors could face losses on large long positions in the high-yielding lira.
The ripples were more modest elsewhere with MSCI’s broadest index of Asia-Pacific shares outside Japan actually adding 0.2 percent, aided by a 0.8 percent rise in Chinese blue chips.
EUROSTOXX 50 futures eased 0.2 percent and FTSE futures 0.1 percent. Nasdaq futures firmed 0.4 percent, while S&P 500 futures dithered either side of flat.
Yields on 10-year Treasury notes edged down five basis points to 1.68 percent, suggesting some favoured safe havens.