New storms approaching

TURKEY - Report 27 May 2018 by Murat Ucer and Atilla Yesilada

In this week’s report, the Political Analyst and his Doppelganger Cosmic Strategist joined forces to place upcoming events in a market perspective, saving detailed analysis of political fundamentals for the Monthly Report we plan to publish during the week.

We argue that the current calm in the foreign exchange and bond markets is a chimera, soon to be replaced by new storm-fronts. We point to election surprises, US sanctions, potential rating cuts and the deep confidence crisis between AKP and investors to justify our bearish views.

On the economy front, as the CBRT fights desperately to stabilize the situation, Turkey’s much-touted fiscal anchor is weakening rapidly. Meanwhile, growth slowdown is continuing, with sectoral confidence indices having headed further south in May. It should not be too surprising to see slowdown deepen under the circumstances, with the economy possibly shrinking in Q3, q/q..

The key release of the week is April trade data, which should come in around $6.7 billion, according to preliminary data from the Ministry of Customs and Trade. This should raise the 12-month rolling deficit to $86.6 billion, up from $84.9 billion in March, but imply a moderation in the pace of widening.

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