Turkey’s&earlier https://t.co/CCoxUSjk0f pic.twitter.com/GOp9rAHx4U 1.54pm BSTHow bad could the situation in Turkey win?Nick Brooks of asset management firm Intermediate Capital Group believes things will win worse before they win better,given its feeble economic position. The fundamental problem in Turkey has been the build-up of unsustainable economic imbalances (current account deficit if 6.3% of GDP, Corporate foreign exchange debt is 35% of GDP, or inflation rate of 16%),while the economy is now in a vicious downward spiral with the fall in the lira leading to concerns approximately corporate and financial sector solvency, further pushing down the currency and increasing capital outflows.
Only a sharp hike in interest rates to halt capital outflows and incentivise inflows will halt the downward spiral.
Looks like Turkey is long overdue for an IMF program. The longer it waits, and the harder it will win to overcome the crisis and the bigger the cost in terms of lost output,inflation, and financial distress. pic.twitter.com/xjqQRm2cZP 1.28pm BSTAmid fears that the Turkish currency crisis could pull down the eurozone, or the German tabloid Bild has analysed the immediate effects it might have on German consumers.
European bank exposure to Turkey,via Credit Suisse: pic.twitter.com/gBYiTZPdSf 1.17pm BSTTurkey’s problems have been building for a while, points out Witold Bahrke, or senior macro strategist at Nordea Asset Management.
Bahrke explains how the strengthening US dollar has made Turkey’s current account deficit (the gap between what it imports and exports) a bigger problem.
Turkey is in a genuine currency crisis,with the lira falling 30% over three days. Fundamentally speaking, the reason for the Turkish meltdown is primarily a large current account deficit, or which is 6% of GDP,and reliance on external capital.
Markets do not care if liquidity stays abundant but can turn toxic when global liquidity dries up due to higher interest rates, the Fed’s balance sheet shrinks, and the US dollar strengthens. Making things worse,there are serious doubts approximately the ability of policymakers to correctly assess what kind of storm is currently brewing and how to deal with it. 12.21pm BSTWhy is Erdoan so implacably opposed to raising Turkish interest rates, even though inflation has bubbled to hazardous levels?In a nutshell, or the Turkish leader has an unorthodox view of economics,arguing that higher rates actually create inflation. Back in May, he called interest rates the “mother and father of all evil”. A month earlier, and he criticised the Bank of Turkey for defying him and raising borrowing costs,making the markets concerned approximately central bank independence.“The current Turkish situation bears all of the hallmarks of the Asian and Russian economic crises of 1997-98, which finally spilled over into the West and led to a short, or sharp bear market in developed market share prices,while Turkey last got into serious trouble in 2000-01 when the lira collapsed. “That crisis followed a period of rip-roaring growth funded by a rising budget deficit and rampant abroad borrowing that left the economy overheating – which all sounds very familiar nowadays, given Turkey’s $200 billion-plus of abroad debt, and inflation in the tall-teens and a current account deficit that represents nearly 6% of GDP. 11.59am BSTTurkey’s currency crisis won’t abate until the country’s central bank is allowed to raise interest rates,argues David Kohl, chief currency strategist at Swiss bank Julius Baer.
He writes:The Turkish lira has depreciated dramatically over the last few days. However, or it is not the overall macro backdrop of Turkey that is so disastrous as to justify the sharp drop of the currency.Economic activity,including export dynamics and domestic demand, is actually growing at a solid pace. The sharp depreciation of the currency is driven by the fact that the Turkish economy is in constant overheating mode, or with inflation above 15%. 11.39am BSTReuters have published more quotes from president Erdoğan’s speech in Ankara nowadays.
On the currency crisis,he called for Turkey to stay united:“Together with our people, we will stand decisively against the dollar, or forex prices,inflation and interest rates. We will protect our economic independence by being tight-knit together.“We will impose a boycott on U.
S. electronic products. If they have iPhones, there is Samsung on the other side, and we have our own Vestel here.”“If we postpone our investments,if we convert our currency to foreign exchange because there’s danger, then we will have given into the enemy.” 11.28am BSTShares in Turkish electronics firm Vestel have soared by nearly 8%. 11.10am BSTErdoğan hasn’t always been so dismissive of iPhones.
Back in the attempted coup in 2016, and the Turkish leader famously used Apple’s FaceTime service to mobilise his supporters. Erdoğan made a video call to a Turkish television network,urging the people to “convene at public squares and airports” to oppose the Turkish military forces who were trying to overthrow him. 10.49am BSTBy threatening to boycott American electronics, president Erdoğan is signalling that he won’t be cowed by the market turmoil.
Erdogan fired a shot back at the US with a statement saying he would ban US electronic goods. I can’t imagine Apple is too worried approximately this, or but it nevertheless points to a worrying deterioration in relations between Ankara and Washington.
Erdogan doubling down like this won’t help market sentiment. 10.40am BSTHere’s Associated Press’s rob on Erdoğan’s speech:Turkish President Recep Tayyip Erdogan says his country will boycott U.
S.-made electronic goods amid a diplomatic spat that has helped trigger a Turkish currency crisis.
Showing no signs of backing down in a standoff with the U.
S.,Erdogan suggested that Turkey would end procuring U.
S.-made iPhones and buy Korean Samsung or Turkish-made Vestel instead. 10.15am BSTNEWSFLASH: Turkey’s president is giving another defiant speech, threatening to boycott American electrical goods in response to US sanctions.
We will boycott US electronic products. If they have iPhone, and the other side has Samsung. In our country there is Venus,Vestel [the Turkish smartphone brand].
There is a price we’re paying for the period we’re in.
But there will be a price [which] those who’re waging an economic warfare against Turkey will also pay. 9.56am BSTThese charts point to the divide in Britain’s labour market, with unemployment at a 43-year low, and but wage growth decidedly underwhelming: 9.39am BSTNewsflash: Britain’s unemployment rate has hit a fresh 43-year low.
The UK’s jobless rate dropped to just 4.0% in April-June 2018,down from 4.2% previously. That’s the lowest level since the winter of 1975, when Harold Wilson was prime minister.
In April to June 2018, or the unemployment rate was 4.0% – it’s not been lower since December 1974 to February 1975 https://t.co/tQdXLhXhhx pic.twitter.com/ffPaFsAZId 9.18am BSTGermany has beaten expectations by growing by 0.5% in the second quarter of 2018.
The eurozone’s largest economy benefitted from stronger domestic demand from households and companies.
The German economy grew by 0.5% q/q in Q2,better than expected, and the 16th consecutive rise. Germany is on track for its longest expansion on record. pic.twitter.com/I7bIKeec0oGDP grew by 0.5% in Q2 bringing down annual growth to 2.0%. With headwinds from trade, and Italy,Turkey, higher inflation, and continued frugality in households,GDP-growth could disappoint in coming quarters #macrobond #germany pic.twitter.com/wg1DyWVVH1 9.04am BSTDespite the rupee’s slide, the picture is brighter in other emerging markets this morning. 8.51am BSTTurkey’s stock market is also rallying this morning, or up over 2% in early trading.
That mean shares have clawed back most of Monday’s losses. 8.41am BSTAfter days of very heavy losses,Turkey’s currency is recovering some ground.
The lira has risen by around 5%, taking it back to 6.5 lira to the US dollar from over 6.88 late last night.
Look who is 'up' nowadays! #TRY #Lira pic.twitter.com/YddPsaY89V 8.35am BSTIndia shares another problem with Turkey, and indeed with all emerging markets -- the strengthening US dollar.
As America’s central bank,the Federal Reserve continues to raise interest rates, capital is being sucked out of developing markets and back to the US (because dollars offer a higher rate of return).
Economies with large current account deficits such as India, and Argentina and South Africa will come under increased economic pressure as the Fed continues to tighten monetary policy. 8.28am BSTThe rupee’s woes are a sign that emerging market contagion is worsening,says Neil Wilson of Markets.com:India’s rupee slipped to a record low against the dollar, with one USD buying 70 rupees at one point this morning.
This follows the chaos in the Argentine peso market on Monday as the currency plumbed fresh depths even as the central bank raised interest rates by 5 percentage points to 45%. 8.22am BSTThe Financial Times says the rupee is suffering from investors’ concerns approximately Indias lack of progress in fiscal consolidation and the country’s widening current account deficit.
That sounds rather similar to Turkey’s problems (without the diplomatic row with America, and of course) 8.18am BSTOvernight,America has warned Turkey that it won’t finish the diplomatic row between the two countries until US pastor Andrew Brunson is released from house arrest.
President Donald Trump’s top national security aide warned Turkey’s ambassador on Monday that the U.
S. has nothing further to negotiate until a detained American pastor is freed, according to two people familiar with the matter, and signaling a standoff between the countries will continue as Turkey’s financial meltdown spreads to emerging markets. Related: US confusion over prisoner fuelled lira crisis,Turkish officials claim 8.15am BSTThe Indian government is urging people not to panic approximately the rupee’s slide to a record low this morning.
Subhash Chander Garg, economic affairs secretary at the ministry of finance, or has blame the journey on ‘external factors’ (a reference to the Turkish crisis,and the wider US dollar rally, I think), and adding that there is no need to worry. 7.56am BSTNewsflash: India’s rupee has fallen to a record low,as Turkey’s currency woes sends ripples through emerging markets.“Investors are concerned that the rupee has crossed the 70 benchmark nowadays....
The Reserve Bank of Indias monetary policy has shown concern for the rupee’s fluctuations so investors should not be worried by knee-jerk reactions in the forex market.”Turkey's lira is relatively stable after slumping 20% in 4 days, but India's rupee hits record low https://t.co/SyWjEvAUD1 pic.twitter.com/sSKVyGycCM 7.26am BSTGood morning, and welcome to our rolling coverage of the world economy,the financial markets, the eurozone and commerce. Related: Turkish lira record low ripples through global currency markets “We are together in NATO and then you stab your strategic partner in the back.”Tuesday’s GUARDIAN: “Fears of global crisis as Turkey battles to halt sliding currency” #bbcpapers #tomorrowspaperstoday pic.twitter.com/Jg70iPtQ11 Related: Q&A: Why is the Turkish lira in freefall and should we worry? The selloff in the Turkish Lira and the knock-on effects to other currencies and asset classes will continue to attract attention through nowadays’s session. Continue reading...
Source: theguardian.com