Dark tunnels, approaching lights

TURKEY - Report 13 May 2018 by Murat Ucer and Atilla Yesilada

With six candidates certified to contest the election, Erdogan remains our favorite to win in the second round. Yet, a new trick by the opposition alliance and a potential swing of the Kurdish vote towards his rival could make him sweat.

In general elections, our poll-of-polls table suggests AKP-MHP alliance is still in the lead, but momentum has shifted to the opposition alliance. Assuming pro-Kurdish Rights HDP makes it to the parliament, our most likely scenario is evolving into a “divided Ankara” or “cohabitation” scenario, but we beg for two more weeks so that we review the upcoming polls -- to be conducted directly on the alliances -- before we make an official call.

Abroad, after a court ordered Pastor Brunson back to prison, the US Congress may lose its patience, passing sanctions legislation on Turkey. Additionally, Iran sanctions buster Mr. Hakan Atilla’s sentencing hearing is on May 16th, after which date the Treasury Department may make an official pronouncement on whether a Turkish bank or banks will be fined as co-conspirators.

Having just unveiled a new set of measures to boost the housing market, the government is looking increasingly desperate for more stimulus, but “fat rabbits”, as we had predicted, are proving difficult to find. A bigger problem is that Ankara is showing no sign whatsoever of acknowledging the need for policy adjustment and continues to send conflicting messages.

There are a number of important data releases this week. We forecast the March current account deficit (CAD) at some $4.1 billion, which is slightly lower than consensus ($4.2 billion). If true, this should increase the 12-month rolling CAD by about $1 billion, to $54.3 billion.

Cosmo says the sell-off in Turkish markets could accelerate, as the CBRT is unlikely to deliver the kind of bold move the market came to expect of it, while President and his economic team are flying to London to persuade investors that AKP’s unorthodox theories are right, and investors are wrong.

Now read on...

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