Last morning, I shared with you my opinions on the current agenda on my YouTube channel and morning show on TV100. However, this time I’ll be sharing these opinions with you in writing today upon popular demand. Here’s what’s on the agenda:
Turkey’s credit rating cut by Moody’s and decision to maintain a negative outlook, escalating tensions between Turkey and the United States, Fed’s interest rate decision, upcoming Istanbul elections, Erdoğan-Trump meeting to be held during G20 Osaka summit…
Let’s tackle the first item on the agenda: As I have mentioned in yesterday’s report, Turkey’s credit rating cut by Moody’s was a political decision despite Turkey’s economic fragilities, because when we look at the press statement, we can see that Moody’s used rather universal content. Although “external fragility and current account deficit” issues have been emphasized, they haven’t been investigated from the right perspective. I would completely agree with Moody’s if they said, “Current account deficit is falling while GDP growth is slowing down, which is caused by structural deterioration” but this almost worldwide known fact does not necessitate a rating cut. They might be predicting an economic deterioration as well; however, they shouldn’t use a rating cut to warn us about that risk. Therefore, I think Moody’s rating cut decision is a side effect of the increasing disruption in Turkey-US relations.
Here’s the interesting part: Both parties are waiting for the other takes the first step. This situation was merely caused by both parties’ “let the things unfold naturally” approach. Turkey has expectations involving President’s Trump veto power. Up until next week, the United States was waiting Turkey to postpone the S-400 deal, however, both Turkish and US President made a statement that they would not back down.
In the meantime, Central Bank decided to keep interest rates intact to give the message that they are not seeing the issue only from an economic perspective. During the holiday, members and non-members of Fed had said, “It is likely the Federal Reserve will cut interest rates in 2019”. In my opinion, Fed decision scheduled for Wednesday will not include a change in rates but a change in Fed’s stance. In my previous reports, I told you about a scenario involving “liquidity constraint and low interest rate option”.
“Istanbul Elections are closely monitored by investors…”
Istanbul elections are set to be re-held on Sunday. Things got so complicated that there’s a high likelihood Istanbulites may face another snap election after the local elections. The government, however, had promised that there would be other elections after March 31.Foreign Investors are closely tuned in this election. They are curious to see the results but they are also wondering whether or not Turkey still abides by the rule of law.
The abovementioned US-Turkey tensions might be taken to another dimension at G20 Osaka summit, considering Putin will be there too. Turkey’s realities and the US demands haven’t exactly match so far. Russia, on the other hand, chose to remain silent except its decision to deliver S-400 missile systems earlier than initially planned.
It looks like the last two weeks of June will be pretty exciting for all of us! The direction exchange rates will take as of this morning might serve as a message which will need proper interpretation.
By the way, there’s been slight improvement in jobless figures. But, it’s still early to speak clearly so we’ll have to wait for the outcomes of the developments in April, May and June. I must also say that I’m not very fond of the “seasonal adjustment” concept since it may lead to fiscal illusion.