Posts tagged 'Turkey'

Monetary policy: it’s mostly fiscal

Inflation is always and everywhere a monetary phenomenon…Government spending may or may not be inflationary. It clearly will be inflationary if it is financed by creating money, that is, by printing currency or creating bank deposits. If it is financed by taxes or by borrowing from the public, the main effect is that the government spends the funds instead of the taxpayer or instead of the lender or instead of the person who would otherwise have borrowed the funds. Fiscal policy is extremely important in determining what fraction of total national income is spent by government and who bears the burden of that expenditure. By itself, it is not important for inflation.

–Milton Friedman, “The Counter-Revolution in Monetary Theory” (emphasis in original)

Friedman’s idea was radical when he suggested it in 1970, but it has since become boringly mainstream. Nowadays the standard line is that central banks have all the power and (usually) offset the impact of fiscal policy changes.

So it was refreshing to read a speech by Christopher Sims at this year’s Jackson Hole economic symposium suggesting that the common view has things backwards. To the extent central banks have any impact on inflation, it’s by tricking elected officials: Read more

Waiting for clarity, Turkish edition

Analysts are mostly agreed. AKP’s decisive victory in Turkey at the weekend has brought some long awaited political certainty to the region.

Twenty-four hours later, the lira appeared to be consolidating recent gains against the euro and the dollar while the country’s benchmark stock index, which surged five per cent on Monday to its highest level since July, was off less than a per cent:

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You TRY, you fail…

For what it’s worth, people are blaming paltry action from the South Africans… Read more

Analysts said ‘no change’, market in TRY said otherwise…

That’s after the Turkish central bank ignored all the noise around it and choose instead to leave interest rates on hold at 4.5 per cent. Read more

Bowing to the inevitable in Turkey?

Remember when we suggested Turkey’s choice was to “Raise rates, or carry on throwing FX reserves into trying to stop Turkey being the first EM casualty of the great post-Fed shift in global liquidity”? Well, central bank Governor Basci put what looks like an answer on the central bank website on Monday:

Monetary and fiscal policy uncertainty and the associated volatility have recently been elevated at the global level. The Central Bank will not allow any negative spillovers from these developments to price stability and financial stability in Turkey.

To this end:

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The Turkish inversion

That’s the Turkish two-year yield rising above the 10-year earlier on Wednesday — chart via Reuters:

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Where is the EEMEA flow?

An interesting anomaly is popping up in the world of Eastern Europe, Middle East, and Africa (EEMEA) flows, note Bank of America Merrill Lynch on Friday:

Investors are puzzled by the lack of EEMEA FX appreciation in spite of G-10 central bank printing. Waiting for the flow may be like Waiting for Godot: you wait and wait, but he never comes. Global rebalancing, deleveraging and higher US rates are responsible for this, in our view. In sum, the flow trends are consistent with the poor performance of EEMEA FX—and insofar as they are unlikely to change, currencies are likely to remain weak.

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Financial punditry reportedly criminalised in Turkey

Bloomberg states that Turkey’s new Capital Markets Law, enacted at the turn of the year, promises harsh punishment for… Read more

Turkey’s pending upgrade to currency war footing

So, Fitch has become the first of the ratings agencies to upgrade Turkey to investment grade, giving it its first such rating since 1994. It’s been a while coming and the Turkish lira jumped at the news — up 0.9 per cent at pixel time against the dollar to a three month high:

So far, so rosy… if unsurprising. But there may be an interesting by-product of this overdue upgrade. Namely, it might force the Turkish central bank into a smidgen of FX fiddling. That is, if the upgrade actually matters and inflows really step up. Read more

Carlyle to focus on Turkey and Saudi Arabia

Carlyle Group has installed a leadership pairing at its Middle East and north African arm as the private equity group reframes its investment strategy, focusing on the region’s main growth markets in Turkey and the Gulf, reports the FT. Carlyle has promoted Can Deldag and Firas Nasir to co-heads of its regional franchise, in a move that is set to be unveiled on Monday, said people close to the US buy-out house. The leadership change emphasises Carlyle’s focus on Turkey and Saudi Arabia, the two countries where it has struck all its deals since setting up a regional $500m fund in 2009. Turkey in particular is attracting foreign investment capital while many north African economies are being shunned by investors, amid a string of political upheavals in the region.

Turkey quake death toll reaches over 200

More than 200 people were confirmed killed and hundreds more feared dead after an earthquake hit parts of southeast Turkey Sunday with rescue teams working through the night to free trapped survivors, Reuters reports. Early Monday, interior minister Idris Naim Sahin said the 7.2 magnitude quake killed 100 in the city of Van and 117 in the badly hit town of Ercis, 100 km (60 miles) further north. The death toll was expected to rise. Overseeing emergency operations in Ercis, Sahin said a total of 1,090 people were known to have been injured. Hundreds remain unaccounted for. Rescue efforts struggled to get into full swing following the quake, with electricity cut off as darkness fell on the towns and villages on the barren Anatolian steppe near the border with Iran.

Regulatory arbitrage with Tony & Nat – redux

More on Tony Hayward’s first big oil deal at his new investment vehicle Vallares– the $2.1bn acquisition, via a reverse takeover, of Turkish E&P company Genel Energy.

We have already mused on whether Genel would be allowed to list in London given the share dealing misdemeanour’s of its executive team, which are detailed in this FSA releaseRead more

Further further reading

For the commute home, or while marking your over/under on tomorrow’s payrolls number,

– Banks’ litigation losses in tabular form. Read more

Alarm over plans for Libya no-fly zone

US and British moves to consider military action against Muammer Gaddafi in Libya triggered international alarm on Tuesday, with Turkey and Russia opposing the idea and France and Germany expressing deep unease, the FT reports. With a refugee crisis growing on Libya’s western border after Colonel Gaddafi’s attacks on opposition forces, the US and Britain said they were making contingency plans for a possible no-fly zone over the country. Both made clear there had been no final decisions on such a zone to stop Col Gaddafi from deploying jets and helicopter gunships. Robert Gates, US defence secretary, said the US was moving two amphibious warships, with about 2,000 marines aboard, through the Suez Canal into the Mediterranean, although he highlighted that they would be for emergency evacuation and relief operations. He noted there was no unanimity within Nato on using military force.

Best Buy brand closes shop in China and Turkey

Best Buy, the world’s largest electronics retailer by sales, is closing all of its branded stores in China, highlighting the resistance of Chinese shoppers to some western-style store experiences. The retailer, which will continue to run 170 stores in China under the Five Star brand acquired five years ago, is also giving up an attempt to enter Turkey, with the closure of two trial-run stores opened in the past two years. The company said in a statement that it would close all nine China stores that carry the Best Buy brand, one of the best known US retail marques, but one that has failed to catch on in China, reports the FT.

Diageo strikes Turkish deal

Diageo is close to buying Turkish spirits company Mey Içki Sanayi ve Ticaret for $2bn to $2.5bn, in a deal that would give the UK alcohol giant access to a vast distribution network in the fast-growing nation, reports the WSJ. Barring a last-minute setback, the deal is to be announced on Monday, said people close to the matter. Mey’s owner, US buy-out firm TPG Capital, earlier considered floating the business. UK-based Diageo and other foreign liquor companies have been in a six-year customs dispute in Turkey, which caused Diageo to halt shipments to the country for the past six months. But the row appears to be nearing a resolution, recently approved by the Turkish parliament, which helped convince Diageo to proceed with the deal.

Casualties of the currency war

This is ironic, Brazil.

That’s a Nomura chart showing the Brazilian government as the biggest ‘loser’ of the currency war. You know the war we’re talking about: Brazil was the first and loudest to declare it in 2010. Oops. Read more

The trend continues

Same sort of messages from Turkey, Poland and Norway: New orders were up 3.2 and 1.7 points, respectively. Norway was basically flat.

Not going to move the global needle but reassuring consistency. Read more

BBVA in €5bn rights issue

BBVA, Spain’s second-biggest listed bank, has launched a €5bn ($7bn) rights issue following a deal to buy joint control of Turkey’s Garanti Bank, the FT reports. The rights issue is the third by a big European bank since regulators’ Basel III agreement in September to toughten bank capital requirements. China Construction Bank also on Tuesday announced a $9.2bn rights issue to strengthen its capital ratios. BBVA said that it was buying 24.9% of Garanti for €4.2bn and would jointly manage the bank with Turkey’s Dogus group, a conglomerate. The Source notes that the numbers look good for BBVA, in a deal that ‘kills two birds with one stone’.

Turkish stocks falling? Blame Mark Mobius

On Tuesday evening, October 26, Mark Mobius — the most wanted man in the world — put into effect his dastardly plan to crush the Turkish economy.

Mobius — whose previous schemes included plotting to increase the value of his own gold stocks by detonating a dirty nuclear bond inside the US Bullion Depository at Fort Knox, and smuggling and selling ancient gold coins in order to finance SMERSH operations — has long had it in for Turkey. Read more

Turkey moves towards investment grade status

In the fourth in a series of hot money flows to emerging markets, the FT writes about Turkey’s move towards investment grade status. Istanbul’s ISE100 equity index has hit record highs. Yields on sovereign debt are close to historic lows. The currency is more stable than it has ever been – and strong enough to squeeze exporters. All this is the result of a new reputation for stability that Turkey has established in the past two years: its solid banking system, robust public finances and strong growth prospects led David Cameron, UK prime minister, to assert on a recent trip he paid to Ankara that “Turkey is Europe’s Bric”.

There’s always Schadenfreude, Greece

At least now, Athens probably won’t quite get to the point of having to fend off rumours that it’s about to go cap in hand to the IMF. Unlike, say, its old enemy in Ankara. As Reuters reported on Wednesday:

Turkey and the IMF are not currently holding talks on a stand-by loan agreement, Turkey’s economy minister said on Wednesday, confirming earlier comments from an IMF spokeswoman that talks were no longer taking place. Read more

For Greece, another insult

From S&P:

A European sovereign upgrade cometh? (some mistake, eh)

BNP Paribas’s emerging markets team draws attention to Turkey on Thursday, suggesting the country might be in line,  in contrast to most of Europe, for an S&P ratings upgrade.

As they stated, this would follow upgrades already initiated by Moody’s and Fitch: Read more

Chop, chop, chop the dollar

The FT reported on Tuesday that Brazil and China have come one step closer towards dropping the dollar in trade transactions in favour of their own currencies. Brazilian president  Luiz Inácio Lula da Silva is currently visiting Beijing on a state visit.

The news follows a Reuters report on Saturday that Russia and Turkey have also discussed the possibility of switching to national currencies for the purpose of bilateral trade. As Reuters points out, Russia is Turkey’s largest trading partner, while Turkey is the fifth largest trading partner for Russia. Read more

Political fat tails

Probability distributions didn’t do a great job predicting financial meltdown, and we’re not sure they’ll be much better at predicting general events. But, since it’s not far-fetched to think that political extremes can follow economic ones, for what it’s worth, here is the political application of fat tail risk.

Risk consultancy Eurasia Group is exploring the “increasing likelihood of radical political disjunctures”, or fat tail events in national-level politics. Read more

Emerging Europe outlook: still bleak

It’s still not looking good for Emerging Europe according to the latest report on the region from Fitch:

The central Europeans economies (less so Poland) will be badly affected through the trade channel as they are relatively open and their exports weighted towards cyclical industries such as cars. Commodity producers, mainly in the CIS, will see a sharp drop in income from the fall in their terms of trade. Some poorer countries in the CIS and Balkans are likely to see a drop in workers’ remittances.

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CDS report: Markets go into reverse

After an expected bounce in the market for credit default swaps on the back of rally in equities, sentiment in the debt markets has deteriorated.
European credit derivative indices were trading wide of their closing levels on Tuesday. The Markit iTraxx Crossover index of mostly junk-rated borrowers’ CDS was quoted at 1092bp –  at its wides of the day so far – having briefly traded inside the previous session’s closing level of 1072bp.

The iTraxx Europe index of mainly investment-grade borrowers’ CDS was quoted at 184.38bp, having traded as tight as 179.25bp this morning, after a close of 181bp Monday. Read more

IMF firepower could soon run short

With its $2bn rescue loan to Iceland and $16.5bn to Ukraine, the IMF has started to dip into an arsenal that is full to the brim — yet the organisation could soon run short of firepower. It has about $200bn in easily reachable money and another $50bn or so it can access rapidly. The Telegraph says the IMF could print money by issuing Special Drawing Rights, as it did briefly after the fall of the Soviet Union. Meanwhile, politicans in Turkey are debating whether the country should turn again to the IMF for help.