Markets in turmoil as the year comes to an end

As I was thinking that we’d have a smooth December, a series of development occurred, causing a visible increase in market tensions. Stock traders seem happy with the latest hike manoeuvre of the CBRT; however, I’m pretty sure they would want to welcome the New Year with a little bit liquidity in their pocket. In the meantime, increase in FX rates is fuelling the negative thoughts, which are in fact caused by numerous other reasons, such as:

  • The U.S. Senate Foreign Relations Committee approved a measure that would impose sanctions on Turkey
  • US House of Representatives votes to impeach Trump, sending the case to the Senate for a trial
  • A series of decisions issued by the BRSA about Banking regulation
  • Interesting auditing principle published in Turkish Official Gazette yesterday that no would could quite understand
  • Government’s insistence on Canal Istanbul project
  • Likelihood of an early election before November 2020

In addition to negative developments I mentioned above, there is also the fact that Turkey’s largest companies are currently facing some big financial challenges and the funding provided to these companies by public banks may trigger discussions among government officials. There are also other reasons lying behind the recent increase in market tensions.

“Things may work out just fine if we avoid panicking…”

In an international conference I attended last week, I heard some business people, who are engaged in international operations; say that EU Countries may impose sanctions on Turkish companies due to turmoil in Eastern Mediterranean. Well, this isn’t unexpected but we actually hoped that we could ease the tensions at least before the beginning of 2020. But apparently, things don’t always go as planned.

I have the impression that, under the current circumstances, we could start mending ties with the U.S. and the EU by following a policy of indirect rapprochement with Israel. I’ve been noticing that recently the government has been talking to the business world as well as the diplomatic missions in Turkey, which means, apparently, Turkish government is trying to maintain its stance while making efforts to solve problems.

As for the current state of the FX rates, all we’ve seen so far was some “technical corrections” to the FX rate levels. I think we might tolerate US Dollar to Turkish Lira exchange rate until it hits 6.35-6.40. We may finish the year with these levels, at the worst, provided that market actors manage to remain calm. Such FX rate, however, could bring a negative impact on inflation.