Erdogan can't calme down markets

The much-awaited speech by President Erdogan on the new economic model for Turkey ended up causing more damage across financial markets than offer support. President Erdogan’s speech lacked any form of compromise with international markets and echoed a feeling of defiance and nationalism as he was determined not to fall prey to interest rate lobbies. He believed the crisis could be met by local measures and sacrifices bycitizens to exchange their gold and foreign currency holdings for the Turkish Lira. There were no new policy initiatives announced. The markets were expecting a minimum 300Bps rate hike however Treasury and Finance Minister Berat Albayrak failed to live up to market expectations.

Owing to the high relative exposure of Banco Bilbao Vizcaya Argentaria , Uni Credit and BNP Paribas to Turkish Banks, today’s price performance has seen declines in the range of 3-4% today. The markets are fearing that there a number of loans outstanding in Europe into the Turkish corporate sector and the inability of the Turkish corporates to roll their lending and hit a balance of payment crisis. While we are far from such a bottleneck, market reaction is exhibiting heightened concern of a tail risk scenario which we believe is overstated.

The doubling of tariffs on steel and aluminium by US President Trump further exacerbated the Lira’s fall to -12.40%. While Turkey is not a big exporter of steel and aluminium, the dialing up of tariff announcements by the US underscores that the talks between the two US NATO allies yesterday were unsuccessful. News Wire & Equity Research: +31 084-0032-842

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