Initial market reaction to Turkish President Recep Tayyip Erdogan’s (RTE) new cabinet under full blown “Turkish-type” presidency system was fairly negative on July 10. Markets especially did not like appointment of RTE’s son-in-law Berat Albayrak as finance minister, replacing former economy head Deputy PM Mehmet Simsek and former market friendly Finance Minister Naci Agbal, who were widely seen by investors as one of the few top Turkish officials who could rein in Erdogan’s unorthodox obsessions.

“Overall, there was every sign that Erdogan will increase direct control of crucial policy areas immediately, and without much involvement of qualified domain experts. This should not come as a surprise to regular Turkey watchers, but the FX market had begun to hope. Hence, the lira weakened sharply after trading hours, and in all likelihood, much more volatility awaits,” Commerzbank said in a research note.

“Albayrak will have to move very quickly to re-assure financial markets - and will need to send a signal that he will listen. The economy faces a challenging time and this is a time for orthodoxy,” Tim Ash of Bluebay Asset Management said in a twit.

“Moves over the past 24 hours by Turkey’s President Erdogan to consolidate his power is likely to result in pressure for looser monetary and fiscal policy, but this will ultimately come at the cost of weaker (and more volatile) economic growth, higher inflation and sharper falls in the lira,” Jason Tuvey of Capital Economics said in an e-mailed research note.

“The pace at which he (RTE) is moving to tighten his grip is alarming and, in response, Turkish financial assets have come under pressure,” Tuvey added.

The recent financial market turmoil means that Capital Economics expects the Turkish economy to experience a sharp slowdown over the next twelve months – a quarter or two of negative growth is on the cards.

“Idiosyncratic risks are re-emerging and this should mark the end of the post-election relief rally,” Guillaume Tresca of Credit Agricole said in a research note.

The lira tumbled from 4.55 to 4.73 to the dollar within an hour of RTE’s cabinet announcement on late hours of July 9 — falling more than on the eve of the coup attempt against Erdogan two years ago.

On July 10, lira saw as high as 4.7531 and it was trading at 4.7209, down 0.27% d/d, as of 13:30 local time.

The Turkish lira’s rebound on July 10 was probably nothing more than a dead-cat bounce, Bloomberg reported, citing investor concerns.

“A measure of risks to the currency remains the highest among emerging-market currencies. Options traders are more bearish on the lira than its peers, its historical volatility climbed to the highest since 2009 and the lira’s expected swings over the next three months is the highest in the World,” according to Bloomberg.

Benchmark BIST-100 index has also lost 2.12% d/d to 97,148 as of 13:30 local time on July 10.

The index saw its historically highest level of 121,531.5 during intra-day trading hours of January 29 before gradually descending to 92,721 on June 18. BIST-100 has followed a rising trend to as high as 100,808 on July 9 since then, especially after the June 24 snap polls ended in the first round.

Yield on 2-year benchmark domestic bonds saw 20.51% on July 10 while 10-year benchmark yield tested a fresh record high of 17.84%.

Yield on Turkey’s two-year benchmark domestic bonds reached 20.02% during trading hours on July 5, the highest level seen since 2008.

On July 4, the yields on 10-year benchmark domestic bonds tested a fresh record high of 17.74% after June CPI inflation beat market expectations.

Turkey’s USD-denominated Eurobonds also tumbled on July 10. Price of 2045 bonds fell by 4.3 cents to 87.2 cents while 2038 bonds dropped by 3.9 cents to 95.87, according to Reuters data.

Turkey’s 5-year credit default swaps (CDS) moved up to 309 basis points on the day from 279 basis points on July 8 at closing.