Let’s kick off today’s report with some of the topics we would have discussed under normal circumstances:
- Inflation rate may not turn out to be as high as expected
- Fed left the rates intact
- Confidence Indexes are improving
These are all very comforting provided that of course the “ceteris paribus” law is met, in other words, with other conditions remaining the same. None of the above was important anymore as towards the evening, jailed pastor case further heightened tensions between Turkey and the United States.
First, U.S. imposed sanctions against Turkey’s Ministers of Justice and the Interior, and then Turkey, as a response, Turkey began to prepare a list of US sanctions targets. Therefore, nothing else was able to drive the markets yesterday, other than the developments I just mentioned above.
The fact that USD/TRY remained below 5.00 in the first few hours at least explained a lot to me thus led me to think that people are still expecting this insane period of tensions to be over soon.
On the other hand, I was really grateful that the Central Bank did not raise rates. If they did, now both dollar and interest rates would be going up right now, making the hike decision completely worthless.
“Be proactive, not reactive…”
It really makes me sad that some people still fail to comprehend that the issue here is actually diplomatic, not economic, let alone the fact that how dramatically they humiliated themselves after Turkey’s decision not to release the pastor by making the following statement, “Ten more pastor cases like that, we wouldn’t need the Central Bank!”
If you need further clarification on what I mean, I suggest you to take a look at yesterday’s report.
In short, if Turkey and U.S. foreign secretaries do not step up for reconciliation on the pastor case on Friday in Singapore, things might turn sour really quickly. Mark my words…
Before the 24 June elections, I have tirelessly tried to explain in my reports the need for a calm and serene tone to carry out diplomacy. What we need is a proactive approach, if we really want to avoid a crisis.