LONDON, August 20 (Reuters) – The Turkish lira fell on Monday after S & P Global and Moody & # 39; s further converted the sovereign credit rating of the country into junk and shots were fired at the US embassy in Ankara, while emerging stocks increased more than 1 percent.
The battered lire plummeted 1.5 percent and Turkish sovereign dollar bonds fell over the curve with a few problems to as much as 1 cent, as the economic and political risks remained balanced by investor sentiment.
S & P Global lowered the rating of Turkey to B + from BB-after markets on Friday, indicating the extreme volatility in the currency and forecast of a recession next year.
Meanwhile, Moody's lowered its rating for Turkey from Ba2 to Ba3 and changed the rating outlook to negative, with an emphasis on the weakening of public institutions and the reduction of the predictability of policy making.
Piotr Matys, a Rabobank strategist, said the downgrades were not a big surprise and caused the market participants to worry that Turkey would not expect a significant delay, with the steep fall in the lira posing a risk to financial stability .
The lira lost about 38 percent of its value against the dollar this year, with the fall accelerated by a dispute with the United States over the detention of an American pastor by Turkey.
On Friday, a Turkish court rejected his call for release and pulled a stiff rebuke from US President Donald Trump.
To add to the pressure, shots were fired at the US embassy in Ankara on Monday. "There is a risk that this incident may increase the tensions even more," says Matys. "It is crucial how the Trump administration reacts to this."
Turkish markets start an official holiday from noon to the end of the week, reducing liquidity and strengthening the volatility of lira. A bright spot was that the central banks of Qatar and Turkey signed a currency swap agreement to provide support.
Turkish stocks resisted the negative trend for Turkish assets, an increase of 1.8 percent, but this reflected a broad rally in emerging stocks, with the MSCI emerging market index bouncing 1.1 percent.
Asian rates set the tone with Hong Kong shares with 1.4 percent, Chinese stocks of 1.1 percent and Indonesia with 2 percent.
Investors are waiting this week for trade negotiations between China and the United States, which hope that an end will come to resolving the escalating tariff war between the two. Both plan to implement another round of rates on 23 August.
China & # 39; s yuan also reached 0.4 percent to achieve a 10-day high after 10 consecutive weeks of declines.
Analysts at Danske Bank noted that the depreciation of the renminbi had come to a standstill since China had pushed up money market interest rates at sea.
"It gives a signal that China would want to delay CNY's depreciation due to recent signs of rising capital outflows and possibly not to add fuel to the fire in upcoming trade negotiations with the US," they said in a note.
"We expect the CNY to move sideways before resuming a gradual weakening against the USD on divergent monetary policy."
India shares rose 0.7 percent to new record highs and the Rupees stabilized 0.7 percent at a record low last week.
The bullish mood continued in the European session with Russian shares with 0.8 percent, Polish shares with 0.9 percent and South African shares with 1.3 percent.
The rand also confirmed 1.2 percent against the dollar, leading currency gains.
For GRAPHICS on FX performance of emerging markets 2018, see tmsnrt.rs/2e7eoml For GRAPHICS on the performance of MSCI's emerging index 2018, see tmsnrt.rs/2dZbdP5
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For RUSSIAN MARKET REPORT, see) Emerging Markets Prices of Reuters Equities Last Net Chg% Chg% Chg
Morgan Stanley Emrg Mkt Indx 1034.46 +11.52 +1.13 -10.70
Czech Republic 1061.14 +3.09 +0.29 -1.58
Poland 2238.32 +20.58 +0.93 -9.06
Hungary 36436.96 -36.03 -0.10 -7.47
Romania 8199.89 +14.40 +0.18 +5.75
Greece 718.75 + 8.40 +1.18 -10.42
Russia 1066.69 +13.95 +1.33 -7.60
South Africa 51236.90 +635.01 +1.25 -2.47
Turkey 90245.51 +1510.75 +1.70 -21.75
China 2698.47 + 29.50 +1.11 -18.41
India 38307.43 +359.55 + 0.95 +12.48
Currency Last Previous Local Local
% change% change
Czech Republic 25.70 25.68 -0.09 -0.67
Poland 4.30 4.29 -0.11 -2.81
Hungary 323.48 322.61 -0.27 -4.00
Romania 4.65 4.65 + 0.05 + 0.58
Serbia 117.91 117.90 -0.01 + 0.42
Russia 67.09 66.97 -0.17 -14.06
Kazakhstan 361.07 361.37 +0.08 -7.83
Ukraine 27.68 27.74 +0.22 +1.68
South Africa 14.46 14.64 +1.21-14.55
Kenya 100.80 100.73 -0.07 +2.28
Israel 3.67 3.66 -0.30 -5.22
Turkey 6.08 6.01 -1.17 -37.71
China 6.85 6.87 + 0.35 -5.02
India 69.62 70.09 + 0.68 -8.31
Brazil 3.91 3.91 -0.04 -15.34
Mexico 18.88 18.89 +0.04 +4.04
Debt Index Strip Spd Chg% Rtn Index
Sov & # 39; gn debt EMBIG 390 1 .01 7 68.97 1
Reporting by Claire Milhench
Editing by Gareth Jones