Time to recap.

Turkey’s financial markets have suffered a sharp slide after the country’s central bank chief was dramatically fired over the weekend.

The lira is currently down 8% at 7.78 to the dollar, with the dismissal of Naci Agbal triggering a wave of selling.

Turkey’s stock market also plunged, with the BIST 100 shedding almost 10% of its value as investors headed to the door.

Agbal was dismissed just days after announcing a bigger-than-expected hike in interest rates, which pleased investors but clearly displeased president Recep Tayyip Erdoğan.

Analysts say Agbal’s departure is a blow to hopes that Turkey could adopt more orthodox monetary policy, and could lead to capital flight -- potentially forcing Istanbul to consider capital controls.

Franziska Palmas, markets economist at Capital Economics, predicts more volatility ahead:

The sell-off in Turkish assets and the lira sparked by President Erdogan’s decision over the weekend to sack the central bank (CBRT) governor Naci Agbal is likely to continue over the coming weeks in our view.

However, we think that contagion to other emerging markets (EMs) will remain limited.

Treasury and Finance Minister Lutfi Elvan tried to reassure the markets, pledging that Turkey will continue to stick to free markets and a liberal foreign-exchange regime.

But investors are clearly rattled, with Turkish government bonds slumping this morning and top economists at IIF warning that financial conditions are tightening.

Ratings agency S&P Global says the risks of Turkey implementing capital controls were “elevated” but not the firm’s baseline scenario.

Reuters has the details:

“Recent changes once again highlight the limited operational independence of the Central Bank of Turkey and overall low predictability of economic policy,” S&P’s analysts said.

“One of the key things to watch over the short-term, in our view, is the behaviour of domestic resident depositors and whether they increasingly convert to foreign currency in response to latest developments... Although risks are elevated, capital controls are not our baseline scenario.”

Here’s a round-up of analyst reactions.

Elsewhere.. shares in UK travel companies fell, as Britons were warned not to book foreign holidays yet.

Airlines, cruise operators and package holiday firms all dropped, amid concerns that rising Covid-19 cases in Europe will make it harder to allow international travel this summer.

US economic output fell during a cold and sometimes snowy February, according to the latest survey from the Chicago Fed.

US house sales also weakened in February, with the bad weather and lack of supply both htiting the market.

Deliveroo is on track for the biggest London stock market debut in almost a decade, after its upcoming IPO valued the firm at up to £8.8bn.

Shares in Tesla have rallied back towards $700, after tech investor ARK hiked its price target to $3,000 in 2025.

Whisky, cheese and chocolate producers have suffered the biggest post-Brexit export losses in the food and drink sector, new figures from HMRC have shown.

The UK competition watchdog has launched an investigation into Penguin Random House’s $2bn (£1.45bn) takeover of Simon & Schuster, amid claims that the deal will create a “behemoth of books” with too much power in the global publishing industry.

Kingfisher, the owner of B&Q and Screwfix, has reported a surge in sales and profits for 2020 as a locked-down nation turned to home improvements.

In Italy, 40,000 Amazon logistical workers are holding a national strike over working conditions.

Ikea’s French subsidiary has gone on trial accused of running an elaborate system to spy on staff and job applicants using private detectives and police officers.

Goodnight. GW

After a torrid day. the Turkish stock market has closed deep in the red.

The benchmark BIST 100 index has slumped by 9.8%, or nearly 150 points, to 1379 points.

That looks to be its worst daily fall since 2013, eclipsing the worst days of the pandemic crash a year ago.

Banks, utilities, healthcare firms and energy companies were all particularly hit, with many firms falling 10% - having hit the ‘limit down’ restrictions on the exchange.

Tesla is among the top risers on Wall Street, up 3.5% at $677, after asset manager ARK Invest set a punchy new price target for the company -- $3,000 per share by 2025.

ARK, a long-time backer of Tesla, set its new price targets after calculating that there’s a 50% chance it achieves fully autonomous driving within five years. That would allow the company to scale its planned robotaxi service faster.

ARK explains:

In our last valuation model, ARK assumed that Tesla had a 30% chance of delivering fully autonomous driving in the five years ended 2024. Now, ARK estimates that the probability is 50% by 2025.

Since our last forecast, neural networks have solved many complex problems previously considered unsolvable, increasing the probability that robotaxis are viable

ARK also predicted that Tesla’s insurance business could achieve better than average margins, based on the highly detailed information it collects on its vehicles,

Last year, ARK predicted that Tesla’s share price would hit $7,000 per share, or $1,400 adjusted for its five for one stock split.

According to ARK’s new model, in the best case scenario, Tesla could reach $4,000 per share in 2025, and in the bear case, $1,500 - twice its current levels.

The $3,000 target price would give the company a market capitalisation of almost $3trn.

Bloomberg points out that this puts ARK a long way ahead of other analysts:

Analysts have speculated about the prospect that Tesla will launch a robotaxi service since at least 2015, but there’s little indication its technology is close to making this possible anytime soon. Tesla recently told California authorities that human drivers will still need to constantly supervise a new city streets function within its “full self-driving” suite of features sold as part of its Autopilot package.

As for the company’s insurance product, that began in August 2019 and is currently available only in California.

The FT’s Jamie Powell says there are some holes in the analysis, for example...

To start, ARK forecasts that Tesla’s almost non-existent insurance business could generate revenues of $6bn by 2025, with 40 per cent operating margins, more than three times the margins of auto insurance heavy weight Progressive.

Somehow, we are led to believe, it might manage to do this without having to meet the regulatory capital requirements that are de facto part of the business.

In New York, tech stocks have opened higher in early trading, as US government bonds recover from last week’s fall.

The technology-focused Nasdaq is up 102 points, or 0.77%, at 13,317.

But the Dow Jones industrial average, which contains 30 major US companies, has dropped by 59 points or 0.2% to 32,568 points.

Chipmaker Intel (+2.3%) is the top riser, followed by Apple (+1.3%), while banks and industrial groups are dropping.

The broader S&P 500 index is up 0.2%.

Equity traders will be watching the bond market closely, where the yield (rate of return) on US Treasury bonds surged to 14-month highs last week, as expectations of rising inflation grew.

Today, the yield on 10-year Treasuries has dropped to around 1.69%, having hit 1.75% last week, meaning the selloff has abated (yields rise when prices fall).

Turkey did insist earlier this morning that it would not step back from free markets principles, which may have calmed some worries about the possibility of capital controls being imposed at some point.

Bloomberg has the details:

Turkey will continue to stick to free markets and a liberal foreign-exchange regime, Treasury and Finance Minister Lutfi Elvan said in a statement after the lira plunged following an upheaval at the central bank.

The government will continue to prioritize price stability and fiscal policies will support the monetary authority in its efforts to rein in inflation, Elvan said in a written statement.

Back in London, anxiety that the Covid-19 pandemic could disrupt summer holiday plans has hit travel stocks this morning.

Shares in British Airways parent company IAG have fallen 6% with jet engine maker Rolls-Royce losing 3.1% -- the biggest fallers on the FTSE 100 index of blue-chip shares.

Budget airline easyJet has also weakened, down 6.6% on the smaller FTSE 250 index, with holiday firm TUI shedding 3.5% and cruise operator Carnival down 3%.

European airlines are also dipping this morning, with Deutsche Lufthansa down 4% and Ryanair down 5%.

Health experts warned over the weekend that the rise in coronavirus cases across Europe could jeopardise the UK’s roadmap out of lockdown and makes foreign holidays unlikely.

My colleague Molly Blackall reported on Saturday:

Andrew Hayward, a professor of infectious disease epidemiology at University College London and a member of the Scientific Advisory Group for Emergencies (Sage), said the EU surge showed “the potential for cases to shoot up” in the UK, warning that Britain needed to be careful in easing lockdown measures.

He said the increasing rates in Europe could last up to several months, and that it was “very worrying” to see a possible third wave of the virus while vaccination rates were comparatively low.

“From what I understand, quite a lot of that is the emergence of the strain that came from the UK, the B117 strain, which is more transmissible, which is the same strain that’s still here now,” he told Times Radio on Saturday morning.

“I think it just shows that the lockdown in the UK is necessary and we need to be careful as we release and to watch the figures because this shows the potential for cases to shoot up.”...

Dr Mike Tildesley, a member of the scientific pandemic influenza group on modelling, a Sage sub-group, said the increases in Europe made foreign summer holidays look “extremely unlikely”.

Social care minister Helen Whately warned this morning that the UK public should wait before booking summer holidays abroad, due to rising COVID-19 infection rates in Europe.

Whateley told the BBC:

“My advice would be to anybody right now is just to hold off on booking international travel.

“It just feels premature to be booking international holidays at the moment.”

Our main Covid-19 liveblog has more details:

Jeffrey Halley, analyst at OANDA, says Turkey’s central bank is in a ‘tight spot’:

The base premise of Erdonomics is that higher interest rates cause higher inflation, a theory that flies in the face of conventional economic theory everywhere. Mr Agbal was widely respected for his attempts to stabilise inflation with around 900 basis points of tightening over his short tenure. His demise appears to have been triggered by last week’s 2.0% rate hike, as Russia and Brazil also quietly lifted rates to rein in inflation.

Mr Agbal’s replacement, Sahap Kavcioglu, is a little-known business school professor who shares President Erdogan’s economics theories and is, unsurprisingly, associated with the ruling party. Turkey will be an interesting example of what EM can expect if inflation fears rise markedly. With markets nervous about inflation in developed countries and punishing asset classes accordingly.

Mr Kavioglu has since stated that no immediate change in policy is planned, which seems to have stopped the rot for now, but the new governor is in a tight spot. Cut rates and see foreign investors flee, inflation spike the currency crumple, hike rates and get fired. I would be doing nothing right now as well.

Meanwhile, we can expect some severe burning of foreign reserves to defend the Lira. It is unlikely to stave off the inevitable, though, and I expect Turkish equities and foreign currency bonds to be thrashed today and for downside pressures to resume on the Lira.

The Istanbul stock market has taken a sharp fall, with the benchmark Borsa Istanbul 100 index tumbling almost 9% this morning.

Financial stocks are leading the selloff, on fears of a new currency crisis after President Recep Tayyip Erdoğan replaced Central Bank of Turkey Governor Agbal with Sahap Kavcioglu.

Every sector has been badly hit:

Stephen Innes of AXI Trader says Agbal’s dismissal has given investor confidence a hefty knock:

For context, the market had been warming up to a more normalized monetary policy since November. This move is a big blow to these hopes.

Innes reckons it will take “a little while before the dust settles”, given the new uncertainty over Turkey’s monetary policy:

Turkey faces a classic EM [emerging market] trade-off between squeezing the domestic economy in an attempt to narrow the current account deficit versus a looser-than-needed monetary policy that drives TRY [lira] weakness.

In the forex market, all eyes are on the Turkish Lira today, says Naeem Aslam of AvaTrade, following Naci Agbal’s sacking:

President Tayyip doesn’t want to favor higher interest rates as it makes economic conditions a lot more arduous in the country. Former US President Donald Trump also had a long history of playing with the Fed as well, and at the time, there were speculations that he may fire Jerome Powell, the Federal Reserve President. But nothing like that happened.

Nonetheless, Trump was able to force the Fed’s hand and lower the interest rate. President Tayyip also wants a lower interest rate in the country so that economic growth can pick up more steam. But of course, a sudden decision like the one made over the weekend surprised the market, and a move like the one we are experiencing today becomes inevitable. Speculators will continue to see this as an opportunity to sell Turkish Lira, but they do run a massive risk of burning their hands as the economic recovery in Turkey has become a lot stronger after the coronavirus crisis.

Jim Reid of Deutsche Bank told clients:

The new central bank governor, Şahap Kavcıoğlu, said last night that the CBT will use monetary-policy tools effectively to deliver permanent price stability while adding that the bank’s rate-setting meetings will take place according to schedule. This likely eliminates the risk that markets might see a change in interest rates this week.

David Madden of CMC Markets adds:

The tumble in the Turkish lira has driven up the yen as fears that Japanese retail investors would drop the high-yielding currency and hold the yen as a risk off play – this put pressure on the Nikkei 225.

Fears that Turkey will impose capital controls have hammered the lira, this comes following the abrupt replacement of the countries chief central banker. Turkey’s currency has recouped some of the losses it endured following the start of trading on Sunday night

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It could be a volatile day in the Turkish financial markets, after president Recep Tayyip Erdoğan dramatically sacked the country’s central bank chief early on Saturday.

The shock dismissal of Naci Agbal stunned investors, who had welcomed Agbal’s move towards more othodox monetary policy since his appointment late last year. That included a hefty interest rate rise on Thursday, which had bolstered confidence in the currency.

But Agbal’s departure has sent the lira tumbling - it fell nearly 15% in overnight trading, towards the record lows seen last November (before Agbal’s appointment).

It’s currently trading around 7.85 lira to the dollar, a slump of around 9%, as investors fear that monetary policy could be loosened again, triggering a new currency crisis at an already worrying time for emerging markets.

Back in 2018, Erdoğan famously described high interest rates as the “mother and father of all evil”. He argues that they cause high inflation; a view at odds with conventional economics.

This is the third time that Erdoğan has fired a central bank chief, and analysts were quick to warn that reversing recent interest rate rises could be destabilising.

Tim Ash, senior emerging markets sovereign strategist at Bluebay Asset Management, said:

“This decision is almost as bad as Brexit in terms of being the worst public policy decision I can remember in a country’s history.

“Markets will express their opinions on Monday and it is likely to be an ugly reaction.”

“This implies the government will once again try to stimulate the economy by low rate policies,” said Selva Demiralp, director of the Koc University-TUSIAD Economic Research Forum, in Istanbul.

“Such a priority has a high potential to backfire by causing extreme pressures on the lira and contracting the economy even further,” she said.

The new governor, Şahap Kavcıoğlu, is a former banker and ruling party lawmaker. He has taken steps to reassure the markets, Reuters reports:

Kavcioglu sought to ease concerns about a sharp selloff in Turkish assets and a pivot from tight to loose policy, telling bank CEOs on Sunday he planned no immediate policy change, a source told Reuters.

European stock markets are expected to open lower, with last week’s government bond selloff fresh in the City’s mind.

Fears of a third wave of Covid-19 in Europe, and the escalating row between the UK and EU over access to AstraZeneca’s vaccine, could also weigh on the markets this week.

The latest US housing data, and an econonic survey from Chicago, could intensify the debabe about how long the US central bank can leave its interest rates at record lows.

We’ll hear from Fed chair Jerome Powell later today, when he speaks on a panel on central bank innovation at a Bank for International Settlements event Monday morning.

The agenda

• 12.30pm GMT: Chicago Fed National Activity Index for February
• 1pm GMT: BIS Innovation Summit session on central bank innovatation in the digital age
• 2pm GMT: US existing home sales in February