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Turkish Markets Rally as Erdogan Clinches Syria Deal With U.S.

Published 10/18/2019, 04:33 AM
Updated 10/18/2019, 06:41 AM
© Reuters.  Turkish Markets Rally as Erdogan Clinches Syria Deal With U.S.

(Bloomberg) -- The Turkish lira jumped to its strongest level in almost two weeks while bonds and stocks rallied after the U.S. agreed not to impose any further sanctions on Turkey as part of a temporary cease-fire deal in Syria struck between Ankara and Washington on Thursday.

The currency gained as much as 1.3% to 5.7585 per dollar, erasing losses that were fueled in recent days by concern Washington would impose punitive measures against the Turkish economy in response to the offensive against Kurdish rebels in Syria.

The benchmark stock gauge jumped almost 4% at the open, its biggest advance since June. The yield on five-year benchmark bonds dropped more than 160 basis points, falling below 15% for the first time in a week.

“The truce deal, even a temporary one, fueled optimism among investors that the risk of sanctions has diminished significantly,” said Can Oksun, senior manager of institutional sales at Global Securities in Istanbul. “The mood is broadly more positive.”

The agreement enshrines Turkish control of a 20-mile deep “safe zone” in northern Syria, representing a victory for President Recep Tayyip Erdogan, who had been seeking one for years. The U.S. has also promised to withdraw sanctions announced earlier this week once a permanent cease-fire takes effect.

‘Brutal’ House Bill

Still, risks remain. Republican and Democratic lawmakers have vowed to move ahead with sanctions despite Thursday’s announcement. The measures would penalize Turkish leaders, financial institutions and its energy sector, as well as prohibit any U.S. firms or individuals from buying the country’s sovereign debt.

“If this bill holds as is and is passed it would be brutal,” said Timothy Ash, a strategist at BlueBay Asset Management in London. “Sanctioning sovereign debt would be lights out for Turkey, given it has $180 billion in short-term external debt to finance every year.”

While there is strong bipartisan opposition to Turkey’s incursion into northern Syria, Senate leaders haven’t committed to bringing a sanctions bill to a vote.

The lira was trading 0.9% stronger at 5.7803 per dollar as of 10:53 a.m. in Istanbul. The Borsa Istanbul 100 Index trimmed its advance to 3.5%, with gains being led by Turkiye Garanti Bankasi AS and Akbank TAS, the nation’s largest listed lenders.

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