Week of October 30
This Weekly Tracker’s politics section prepares the reader for the upcoming Quarterly Report by laying out scenarios for the long list of political processes that might have a bearing on asset pricing. The picture is not pretty. Substantial amount of uncertainty still surrounds the question of Executive Presidency, which will begin to diminish as of this week, when AKP makes its proposal public.
Meanwhile, the Gulenist purge accelerated last week, spreading to Kurdish dissidents, while CHP leader Kilicdaroglu accused a member of AKP and his brother in the military of masterminding the coup. Courts began detaining pro-Kurdish Rights HDP mayors, which could soon spread to MPs. Coupled with Turkish aggression against Kurds in Syria, this could trigger new unrest at home.
In Syria, the easy part of the military action is completed. Further expansion is meeting stiff resistance by ISIS, Kurds and even Assad. In Iraq, Ankara might soon be called upon to defend Turkmeni town of Tel Afar, the failure of which would hallow out its new regional policy and cause embarrassment at home.
The Inflation Report told us little new, with inflation forecasts declared for this and next year at 7.5% and 6.5%, respectively, while Governor Cetinkaya stated that the Bank is “planning to finalize the monetary policy simplification within a reasonable schedule”. We maintain that all depends on the behavior of the lira going forward, while we continue to find the Bank’s macro narrative a bit too complacent or even misleading.
The key releases of the upcoming week are September trade and October inflation data. The former should widen by about $0.5 billion, driven by a visible deterioration in “core” deficit (as suggested by preliminary data), while we forecast October inflation at 1.8%, which, if correct, could lift the 12-month rate higher to some 7.5%, up from 7.3% in September.
In a stand-alone section, we took a quick look at TT’s parent troubles. Even though TT has no fault or will probably feel no immediate repercussions from the troubles of Oger, the story has been triggering some questions over Turkish companies mounting F/X debt.
Cosmo is turning increasingly bearish on EM, in the rest of 2016 and 2017. Without EM support and lacking a convincing narrative, TL denominated assets are very likely to drift lower.
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