Corporate stress, idiosyncratic risks
Turkish Forces reached the gates of Afrin City by Saturday, where the base-case scenario entails intense street-by-street fighting, which will cost many lives. Ankara is determined to root out PYD-YPG presence from Syria and PKK from Iraq. While such a posture may be deemed necessary to secure the territorial integrity of the country, it also requires a long-term and costly commitment to overseas military adventures.
The Washington Post reported that the White House has agreed to remove PYD-YPG forces from the contested city of Manbij, but we question the feasibility of the promise. In the first meeting of joint Turko-American commission on Syria, no progress has been reported. On the other hand, disagreements over Pastor Brunson’s detention and S-400 purchase still cast a long shadow over the relationship. According to German news sources, Brussels is entertaining visa waiver for Turkish citizens, provided Ankara moderates its repressive anti-terror legislation. We remain uncertain whether Ankara is ready to take the plunge.
At home, President Erdogan suddenly turned social activist, crusading against child molestation, violence against women and ultra-orthodox interpretations of Quran. We query his motives, which might be genuine or related to erosion of support among the conservative base.
Having covered the February inflation print and the MPC meeting during the week, we limit our economics commentary to this Executive Summary this week, but include a brief section on the rising anecdotal evidence of stress in the corporate debt market.
Moody’s downgrade of Turkey’s sovereign rating another notch down (to two notches below IG now) was a little surprising in terms of timing, but not the substance. The downgrade came on two – hard to object -- grounds of “continued loss of institutional strength” and “the increased risk of an external shock crystallizing given the country's wide current account deficits, higher external debt and associated large rollover requirements in the context of heightened political risks and rising global interest rates”. (Click here for the statement.)
After January’s splurge, cash budget improved in February over the same month of previous year, thanks to both slower primary expenditure growth and buoyant revenue growth. The latter is somewhat unexpected, the details of which we shall see in the budget data this week.
There are several important data releases this week, including January BOP, and January (revised) IP data, which will be based on a larger sample of companies, and aligned to the new GDP series. In line with the consensus, we expect the current account deficit to come in just under $7 billion, which, if true, should raise the 12-month rolling deficit to over $51 billion, from around $47 billion in December.
Cosmo feels vindicated in His bearishness on TL assets, after Moody’s shock downgrade, but claims there is a bigger and more sinister groundswell of incipient risks that could further set markets back.
Now read on...
Register to sample a report