Afrin, Fed and Risk Appetite…

Although it’s been a tough start to the week, at least it is ending well with a decrease in sales pressure. Nevertheless, you can never be too cautious.

I really don’t want to go into details about U.S. delegation’s visit to Turkey, because, I think it is unlikely for Turkey to violate its own diplomatic policy as it has already set forth its list of terms. But the United States still says, “We may think about taking a position where we will take different approaches to PYD and PKK”.

U.S. sends its top officials to Ankara almost to prove that, as American government, they carry out shuttle diplomacy. However, there is not any available platform that might offer reconciliation. Turkey had determined its red lines from the very beginning even though they say that the diplomacy is the best possible way to solve conflicts. Therefore, I think I will avoid making any comment on this matter until it is solved.

Let’s take a quick look at the markets now: It looks like expectations for the Fed will hike interest rates not three, but four times this year are getting stronger, which means interest rates will continue to rise. In that case, I think we might easily say that bond yields too will climb up.

“Investors keep hope alive…”

In the light of all the facts mentioned above, Treasury preparing to hold a series of tender in February will need to act in a very careful and cautious way in handling these tenders. One wrong step may result in a level of 15 %, because, let me remind you that in last November, it had hit above 14 %.

I must say that interest rates in Turkey are two times higher than the average interest rate in emerging countries. The same goes for the inflation. Likewise, unemployment data never moves beyond double-digits. The only reason for exchange rates and interest rates do not hit record highs even in such tough circumstances, is the investors’ risk appetite.

If there were a global decline in risk appetite, proper balance of economy would turn sour in a lot of countries, including Turkey. However, as I have been saying since the beginning of the year, both global growth and global trade are going pretty well for now. And I can assure you that any reason that might cause this strong trajectory to break down would not be an economic or financial one, because the cause will either be military conflicts or the rise of protectionism.

In conclusion, although we are living on our nerves all the time, no drastic deterioration in markets is expected to occur. So, just maintain your “cautious optimism”.

Prof. Dr. Emre Alkin