July 22, 2020 / 9:00 AM / 24 days ago

EMERGING MARKETS-Stocks fall after three days of gains, Turkish lira weakens

* Turkish lira pressured by heightening tensions with Greece

* China says U.S. told it to shut its Houston consulate

* Russian rouble weakens as oil prices slip

By Shreyashi Sanyal

July 22 (Reuters) - The Turkish lira weakened on Wednesday as the country’s tensions with Greece rose, while emerging market stocks fell after three straight sessions of gains amid signs of increasing strain in U.S.-China relations.

The lira fell against the dollar, after Greece accused Turkey on Tuesday of attempting to encroach on its continental shelf in a serious escalation of tensions between the two NATO allies at odds over a range of issues.

Turkey’s currency has fallen 13% so far this year, with recent data from bank regulator BDDK highlighting short foreign exchange positions, beyond limits usually permitted by the regulator.

Analysts at Commerzbank say the data is consistent with market speculation that state banks cooperated with bank regulators to intervene against lira weakness by keeping their foreign exchange positions shorter than required.

“But, if this were to become a regular tool of FX intervention, it would spell trouble for the lira down the road because of the systematic weakening of bank balance sheets.”

The high-yielding South African rand slipped from a one-and-a-half month high, with investors watching for the South African Reserve Bank (SARB), which will end its three-day policy meeting on Thursday, with lending rates expected to be cut by 25 basis points.

Russia’s rouble mirrored a drop in oil prices, while central and eastern European countries remained range bound against the euro.

The MSCI’s developing world stocks index fell 0.6% after China said the United States had abruptly told it to close its consulate in the city of Houston, a move that Beijing said it strongly condemns, threatening retaliation.

“This is a very fragile market, and the last thing traders need is to deal with another unwanted episode of Axis vs. Allies,” said Stephen Innes, chief global markets strategist at AxiCorp.

The index had risen to its highest level in nearly two weeks as the European Union agreed on a massive stimulus plan and several promising trials raised hopes for a coronavirus vaccine.

However, rising global coronavirus infections pose a significant threat to a 43% recovery in the index from a March trough.

For GRAPHIC on emerging market FX performance in 2020, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Vinay Dwivedi)

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