Turkish military coup: Implications for Monday open - TDS

Cristian Maggio and Sacha Tihanyi, Strategists at TD Securities, share their take on the implications of what appears to have been a failed Turkish military coup, when markets open on Monday.

Key Quotes

"The events that unfold over the weekend will obviously be key for the open of markets Monday, but we’d expect a potentially negative knee-jerk reaction in Asia, but one that should be contained. European FX and risk assets will likely be more hit given the uncertainty, and considering that CEEMEA currencies bore the some of the greater burnt as the news unfolded. Outside of the region, MXN may underperform significantly in Asian trading, as the non-Asian EM risk proxy, and JPY could see additional support given that it appreciated on the news of a coup."

"For Turkish financial assets, TRY will remain under pressure, as Turkish fixed income and equities respond (very negatively), assuming that local markets are trading on Monday. It’s questionable how the central bank will react, as leadership going forward is not certain. However, we expect that it is likely the rates curve inverts in this environment, derailing any attempt by the CBRT to hike rates next week. Overall, expect that sustained uncertainty will imply asset weakness, as it did during the 2014 Thai coup (for a more recent example)."