Markets find equilibrium after initial rally following referendum outcome

Published 18.04.2017 00:53

Positive pricing in lira-denominated assets continues due to the elimination of significant uncertainty in the short term and statements affirming that there will be no snap elections.

The positive outlook in lira assets continues following the referendum. However, the strong movement seems to have been limited due to the previous reflection of the referendum on prices, the Easter holiday period of the European markets and geopolitical risks.

Dollar at 3.66 levelsThe dollar-lira exchange rate, which saw a steep move on the 3.63-3.68 band in the first half of the day, stabilized at 3.66. The exchange rate, which fell back to 3.6250 on the international market last night following the referendum, today saw the lowest at 3.6304 and the highest at 3.6807 and stabilized at 3.6590 as of 2 p.m.

Stock market tries 91,000The Istanbul stock market rose less than 1 percent Monday, the day after Turkey narrowly voted to adopt a presidential system.

The Borsa Istanbul Stock Exchange (BİST) 100 index climbed 0.74 percent to 90,731.33 points - a 667.63 point rise on the market at the end of trading on Friday.

The banking and holding sector indices rose 0.75 percent and 0.69 percent respectively and the electricity sector index was the best performer with a 1.82 percent increase.

The U.S. dollar-Turkish lira exchange rate dropped to 3.6640 at 9:30 a.m. local time (6:30 a.m. GMT) on Monday, compared to 3.6880 at Friday's close.

Turkey voted by a margin of 2.74 percent on Sunday to accept the constitutional changes proposed in an 18-article bill that will usher in an executive presidency.

Interest rates, on the other hand, followed a downward course. The compounded interest rate of 10-year bonds, which climbed to 11.11 percent on Friday, declined to 10.8 percent today. The two-year benchmark interest rate, which closed the week at 11.46 percent compounded level, declined to 11.2 percent levels.

It is stated that positive pricing in lira assets and a positive divergence trend from abroad may continue for some time due to the elimination of significant uncertainty in the short term and the announcement regarding lack of early elections. While the tensions between the U.S. and North Korea are followed on one hand, it is also noted that profit sales may remain limited on the BİST side so long as there are no severe losses abroad.

While it is considered that the outcome of the referendum has reduced the political uncertainties in the short term, it is thought that the reform's performance and EU relations will be important, along with the geopolitical developments, in terms of macroeconomic outlook and financial markets.

March industrial production data to be released in the U.S. today and April expectations for the manufacturing industry in the eurozone to be announced on Friday will be followed. The first round of presidential elections to be held in France on Saturday is important for the political uncertainty in the region.

The dollar's next course

Kerim Aydinlar from Garanti Yatırım listed the factors that will determine the course of the dollar-lira parity after the initial response as the policy stance of the Central Bank of the Republic of Turkey (CBRT), how the political agenda will be shaped within the country and the geopolitical news flow from Syria. If the CBRT maintains a tight policy stance and a moderate approach and comes to the fore in domestic politics, it believed that the lira will follow a strong course in the coming weeks. Levels of 3.6250, 3.60 and 3.58 have been indicated as support levels in the dollar-lira parity, while 3.64 and 3.6750 are regarded as resistance levels. It is stated in Ata Yatırım's market note that 90,000 resistance points should be broken again in order to accelerate the rise in the stock market index BİST 100.

In VakıfBank's market note, on the other hand, it is noted that if the risk appetite declines in global markets, 89,700 support will be important for the index in the possible sales to developing country markets.

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