Europe's Wooing of Turkey Lifts Lira Most in Emerging Markets

Updated on
  • Currency gains as trade deficit narrows more than estimated
  • Ten-year government bonds advance as yield drops second day

The lira jumped the most in emerging markets as prospects for renewed talks on Turkey’s membership in the European Union bolstered investor confidence undermined by the stand-off last week over a downed Russian jet. Government bonds advanced a second day.

EU officials pledged to help Turkey resume its membership bid and agreed on a package of 3 billion euros ($3.2 billion) to help the nation tackle the inflow of refugees from Syria. The currency strengthened 0.9 percent to 2.899525 against the dollar at 5:45 p.m. in Istanbul after data showed the October trade deficit narrowed more than estimated. The government’s 10-year bonds rose as the yield declined four basis points to 10.16 percent. The Borsa Istanbul 100 Index closed lower.

“Investors put more emphasis on renewed talks with the EU and improvement of trade deficit than sanctions imposed by Russia," Emir Baruh, a trader at Akbank TAS in Istanbul, said by e-mail. "It was sort of a surprise, though. Investors closed most of their short lira positions against other emerging-market currencies today, which helped lira recoup some of the losses from last week.”

The lira tumbled the most since March last week as Russia imposed trade restrictions on Turkey after its fighter jet plane was shot down on Nov. 24 by Turkish jets at the Syrian border and threatened retaliation against any future incidents. The squabble jeopardized the common front that U.S, its allies and Russia had planned to put up against Islamic State terrorism.

Dangling Rewards

EU representatives met Turkish Prime Minister Ahmet Davutoglu in Brussels on Sunday as they attempted to present a united front and seek the nation’s cooperation in dealing with the fallout of conflicts in the Middle East. In return for Turkey’s bolstering its border controls, Europe has promised rewards that could bring them closer than any time in the last decade.

Russia imposed economic sanctions on Saturday, banning some Turkish organizations and the import of certain goods. Turkey’s trade deficit narrowed to $3.62 billion in October from $6.29 billion in the same month last year, according to official data released by the statistics office in Ankara. Economists had estimated a gap of $3.95 billion.

Stocks Fall

The government’s two-year bonds fell as the yield climbed two basis points to 10.55 percent.

The Borsa Istanbul 100 Index closed 0.5 percent lower at 75,232.79 after climbing as much as 1.2 percent earlier. The gauge fell after the Kremlin’s spokesman said Russian President Vladimir Putin doesn’t plan meeting Turkey’s President Recep Tayyip Erdogan in Paris. Turkiye Petrol Rafinerileri AS’s 1.5 percent loss was the biggest contributor to the gauge’s drop.

Russia may increase restrictions against Turkey, Prime Minister Dmitry Medvedev said.

“There was hope among market players that Russian and Turkish presidents would meet in Paris and the tension would start to be defused,” Burak Cetinceker, a money manager at Istanbul-based Strateji Portfoy Yonetimi, said by phone. “That hope has faded. We are likely to see these fluctuations for some time until the two leaders agree to come to table and talk. ”