The monetary and capital markets have been going through some tough times since the government officials have announced that one coronavirus affected person is detected in Turkey. BIST is trying to remain above 100.000 while USD/TRY exchange rate is going up again.
I met with a couple of well-experienced market actor on Tuesday. We talked about the current situation of the markets. Obviously no one had positive things to say about neither global markets nor the markets in Turkey.
Another important investor with whom I spoke on the phone the same day told me that markets are rising today but it will be a short-term thing. These are just reaction-led sales. The things that happened at the end of the day did in fact confirmed what he said. It was also interesting that he said, “I’m more worried about the real sector. Stating that the public sector has been sparing no efforts to prevent FX rates rises, the investor added, “We have some difficult times ahead”.
And I happen to agree with him since many conferences are being cancelled one by one all around the world due to coronavirus fears. Normally, it would be the busiest time of the year for scholars and business people conference attending -wise. A large number of international conferences are postponed to a later date. By the way, there is huge social media frenzy. There are more and more rumours saying that coronavirus is rapidly spreading all over the world, and the death toll is rising. While WhatsApp messages are driving everyone into a state of panic, the recent statement by US government officials made things even worse. By the time when the governor of Maryland said, “An old lady traveling back from Turkey is diagnosed with coronavirus”, Turkish Minister of Health Mr. Koca announced that there may be coronavirus in Turkey, which led to a sharp fall in BIST and a sharp rise USD/TRY rate.
“We should expect record lows…”
When the investors once again back to a better mood, dollar has started to appreciate again because the fact that the risk appetite is falling means there is a rush back to dollar. It’s only normal that the parity is falling since the investors, having sold their assets, are now back to dollar or dollar-denominated assets. Here’s an even more important info for you: the 10-year Treasury yield dropped below 1% for the first time since 1871. It has never before dropped this low.
However, there are vigorous rumours that the Fed may cut rates again on March 18. After its emergency rate cut, Fed is expected to push its key policy rate to near zero. If this happens, CBRT would definitely lower rates to single digits. So, I suggest everyone to get prepared against any potential side effects arising out of the rate cut.
By the way, I think companies will try to lower funding cost over the next 7 days, considering there will be a huge gap between market interest rates, interbank monetary market and policy interest rates after March 19.