Head of Macroeconomic Research
Summary: Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance.
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Today’s edition focuses on Turkey. The country’s 5-year CDS has receded from its peak of mid-March, but it is still elevated at 441bp, which is way above its long-term average of 345bp. This relative improvement is mostly due to U.S. dollar weakness which is typically favorable to EM markets and especially the Turkish market. However, upward risk remains as political interventionism is still driving monetary policy and preventing the CBRT from committing to hike interest rates. Facing a balance of payment crisis, in our view, Turkey has little choice but to increase rates. The strategy which has consisted in using state banks as front line in defence of the TRY exchange rate has been a complete failure. The Turkish lira has dropped another 0.76% last week, bringing YTD depreciation to 24.18%. This makes the TRY the 2nd weakest emerging currency, just after the Brazilian real which has decreased by almost 35% versus the USD over the same period. Turkey should follow Kazakhstan’s example. In March, the country decided to let the FX rate go and hiked aggressively rates by 275bps in one shot and since then the tenge exchange rate has stabilized and the central bank has been able to cut rates back down to 9% to stimulate the economy. This is the only correct and rational path to choose if the CBRT wants to avoid more drastic measures in the near future, i.e. capital controls and debt restructuring.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
