A perverse improvement in fundamentals
The title for this week's report refers to perceptions of improved political stability as well as of economic fundamentals – of a perverse kind -- because especially the latter hugely worry us in the medium-term, but could do wonders for investors in the very short-term.
As President Erdogan and MHP leader Bahceli reunite for municipal elections, Erdogan may meet Trump and Crown Prince Mohammed bin Salman (MBS) in Buenos Aires to resolve the tensions created by the murder of Khashoggi. In terms of market outlook, the escalating collapse in domestic demand is suppressing both inflation and CAD, albeit temporarily and at the expense of a malign corporate debt spiral.
We predict with a large margin of error that in Buenos Aires, Erdogan and Trump will take further steps to build on the recent progress in the bi-lateral relationship, while Erdogan should have enough sense to cut a deal with MBS on ending the Khashoggi affair.
At home, Erdogan sought refuge in Bahceli’s arms because of sagging poll numbers, but it is not entirely clear what concessions the nationalist leader extracted in return. At the end, it may not matter. We don’t have any evidence that alliances will prove effective in municipal races, while CHP-IYIP and perhaps even Islamist SP are closing ranks to mitigate the potential advantage of AKP-MHP.
There was not a whole lot happening on the economy front last week. Treasury and Finance Minister Mr. Berat Albayrak hinted that Treasury may not borrow in December, in a further effort to drive interest rates lower; economic indicators continued to weaken (some wobbliness in the data notwithstanding), and this week’s October trade deficit data should show another sharp drop in the 12-month rolling deficit.
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