EMERGING MARKETS-Stocks, FX surge; Turkish lira leads gains after c.bank shake-up

The U.S. dollar sank to a 10-week low after Biden was declared as the winner over the weekend, while China's yuan and the Mexican peso - both recent targets of U.S. trade pressure - marked strong gains. Turkey's lira was the best performing currency for the day, jumping as much as 4% off a record low after the central bank's newly-installed governor Naci Agbal vowed to "decisively" use all policy tools to rein in elevated inflation levels.

Emerging market stocks and currencies rose on Monday as Joe Biden clinching the U.S. presidency increased hopes of a less adversarial U.S. trade policy, with the lira leading gains after a large shake-up in Turkey's top economic policymakers. The U.S. dollar sank to a 10-week low after Biden was declared as the winner over the weekend, while China's yuan and the Mexican peso - both recent targets of U.S. trade pressure - marked strong gains.

Turkey's lira was the best performing currency for the day, jumping as much as 4% off a record low after the central bank's newly-installed governor Naci Agbal vowed to "decisively" use all policy tools to rein in elevated inflation levels. Agbal replaced Murat Uysal, who was fired by Turkish President Tayyip Erdogan after barely more than a year in office. In another announcement, Finance Minister Berat Albayrak said on Sunday he was resigning for health reasons.

The moves came in the wake of steep declines in the lira due to concerns over dwindling foreign exchange reserves, double-digit inflation and strains in Turkey's relationship with its NATO allies. While expectations of a rate hike saw the lira set for its best day in nearly two years, analysts questioned the implications of Usyal's ouster on central bank independence.

"Uysal was not the main reason for the TRY weakness. For a long time, he did exactly what Erdogan had repeatedly demanded in public: provided low interest rates," said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank. "Only when that was no longer possible did he implement an interest rate policy turn-around. And as a result, was immediately fired."

Turkish stocks added 2.4%. Other currencies in Europe, Middle East and Africa marked small gains, while stocks rallied. The MSCI's index of emerging market stocks rose 1.3% to its highest level since March 2018.

The polish zloty rose 0.5% after the country's central bank held rates on Friday as it said the coronavirus epidemic's economic impact would be less extreme in 2020 but the subsequent recovery slower than it had forecast. In Asia, China's yuan jumped to a more than 28-month high to the dollar, as markets priced in improving Sino-U.S. trade relations after a change in U.S. leadership.

Morgan Stanley analysts said the currency stood to benefit after the election, and recommended buying the yuan against the Japanese yen. For GRAPHIC on emerging market FX performance in 2020, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see https://tmsnrt.rs/2OusNdX

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