Pandora's box opens for markets

TURKEY - Report 25 Mar 2018 by Murat Ucer and Atilla Yesilada

The victory in Afrin has granted Turkey a permanent say in the future of Syria, but it has also confirmed our view of a long-term military and economic investment in the war. Furthermore, additional military campaigns heralded by President Erdogan are likely to raise the wrath of the US and/or Assad.

Regarding relations with the US, the breaking point comes in April when the parties will attempt to sort out the Manbij City mess. Given diagonally opposed interests in Syria, it is difficult to imagine Washington abandoning its Kurdish allies, while Ankara is bound by voter pressure to avoid a compromise.

Relations with the EU are frozen in time. This week’s Varna Summit will not change facts on the ground. If Erdogan comes back empty-handed, he might resort to intimidation and invectives for domestic consumption, angering few Turkey supporters in the Union.

At home, AKP doesn’t want early elections, but contrary to its plans, economic slowdown and further erosion of voter support are almost inevitable. AKP will be forced to call early elections by July or early autumn. Current state of polls indicates a victory for AKP-MHP in parliament, while we predict Erdogan will win the presidency in the second-round voting.

This Thursday, we will learn how much Turkey grew in the final quarter of last year, and hence in 2017 as a whole. Publically available polls point to a growth estimate of over 7% in Q4, y/y, whereas ours is slightly lower. As a side, growth indicators continue to come in broadly in line with our view that a momentum loss of sorts is underway.

Another important data release of the week is February trade data, which should show the 12-month rolling deficit widening, albeit at a somewhat more moderate pace than in the past few months, to $83.5 billion from $81.5 billion in January.

Cosmo spells out His long-term view for TL assets: He says Pandora’s Box has been opened and He shall remain a bear until elections are out of the way, and credible policy reform is underway.

Now read on...

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