OVERNIGHT ANALYSIS: Dollar / TL rises to 7.45, Fed is silent, interest rates are rising

Wall Street in the US was reopened with a dealer. At 6:30 AM, the DJ30 and S & P500 lost 1.33% and 0.80%, while personal spending in the US increased 2.4% in January from the previous period, while that personal income went up 10%. While these spending data, which can be considered robust, brings the GDS’s 10-year yield back to 1.5%, the lack of a Fed statement also raises concerns.

TS 6: $ 30 / £ 7.47, but prices and trends in both Turkey and the world are changing so fast that you may have read a different opinion.

The MSCI Developing Countries (EM, Markets = GOP) stock index fell to the 4-week bottom with a 6% weekly loss at noon. When Wall Street opened, the dollar index was trading at 90.39, up 0.2%, keeping pace with rising bond yields. The emerging market currency index fell 0.4% against the dollar.

Speaking to Reuters, Barclay experts said the GOP sales were temporary because bond yields were fixing on a very bright US economy. When America grows fast, it creates demand for everyone.

RBC Capital Markets’ Hong Kong currency strategist Alvin T. Tan told Bloomberg that he expected a tantrum similar to the one in 2013, a long-lasting selloff.

The continuously rising TL of political tensions in the global winds raises prices in Turkey. President Erdogan’s insistence on Kanal Istanbul opened a new front to attack the opposition. In many polls, it was found that citizens coldly looked at Kanal Istanbul.

The announcement of additional restrictions due to the explosion of Covid-19 cases in many provinces may also have negatively affected investor morale.

Reuters commented: “Although the fluctuations are due to US bond yields, they have been experienced in a period of growing concern about the sustainability of current economic policies, increasing pressure on the Turkish lira, according to bankers.” .

The 5-year CDS, which was 570 at the beginning of November and started to follow a permanent course below 300 basis points recently, has surpassed 300 basis points for the first time after a 1-month hiatus today. The CDS is at the 307/313 level at the same time.

While some investors view the depreciation in the TL as temporary, some investors expect further losses due to concerns about the sustainability of economic policies. The divergence of expectations brings with it volatility.

Piotr Matys, Emerging Currencies Strategist at Rabobank, said: “This correction in the markets is certainly painful, but with such a strong gain in value, you should be prepared for some pretty drastic corrections like this one. The appreciation in TL may have stopped on this move, but I don’t think this gain in value is over yet. I don’t expect 6.9, which is the lowest level for USD / TL, to be this year’s low. “I think it is possible to reach the new low for the year at 6.5 USD / TL when calm is restored in global markets.”

Rumors about the possibility of former Minister of Finance and Finance Berat Albayrak, who came on the agenda with the reserve discussions, to rejoin the cabinet were on the market’s agenda this week. Discussions that began with a loss of $ 128 billion in two years before the Bank’s change in economic management (CBRT) in November were replaced by discussions about the cabinet review in no time. Yigit Bulut as a presidential adviser for criticizing the monetary policy of the political interest rate can not be maintained in Turkey, said the value of money. Bulut had previously criticized that high interest rates would cause capital transfers abroad. The compound interest rate on the 10-year bond is at 13.45%, an increase of about 20 basis points compared to yesterday.

Despite the continued panic on Wall Street, the lack of statements from Fed officials is confusing. I wonder if the Fed welcomes rising bond yields. To extinguish the bubble that inflates in the stock markets with slow and natural methods without hurting investors, it is an ideal method to not make noise because of the rise in interest rates on bonds.

Perhaps the Fed will make the necessary verbal intervention on the S & P500 if a deep panic is observed. In this case, the Fed’s weapon is “control of the yield curve”, that is, as the BoJ does, it imposes an upper limit on the yield of bonds with a maturity of 10-30 years, and buys when the interest exceeds this limit.

The most likely scenario is that bond yields will stabilize within a few days to a short-term equilibrium, followed by a resumption of the rally in risk assets. The downside risk is 2. The first is the strong data flow from the US economy, especially non-farm employment for February, and the second is the discovery of a vaccine-resistant mutant virus strain.



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