Turkey Plays Chicken – It Has Just Started
Yes. We rejoice with rate hikes from Turkey because we are not Turks with mortgages.
The Turkish lira jumped 3.5% instantly but bondholders aren’t really cheering except maybe the USD bonds and some of the long end papers which rose off their lows, with the curve flattening out.
It is like a game of chicken, as India hiked the day before but not drastically like the 5.5% hike of Turkey. What would a Turk do ? Get out ? Like the Argentinians are doing.
Just take a look at the USDTRL chart and we can guess what is going through people’s minds.
All gains virtually wiped out on the day because the new game plan is for change in power. Look at Ukraine which achieved what Turkey cannot without rate hikes, just because their premier resigned.
India’s small time hike yesterday which was successful but their problems will start when their elections near. Malaysia stayed put today, saving their bullets.
You see, the Turkish scandal could happen anywhere and they are penalised because they happen to be a democracy. Now, if it had happened in China, we can be assured that we will see no evil or hear no evil or even smell it !
By their actions, Turkey has appeared to have played all their cards at once and the market scents the blood. It brings forth memories of the Asian crisis as the world watched helpless little central banks and all their resolve crumble, wave upon wave of selling.
In this corruption scandal, the markets have found a new unexplored trail of scandals to exploit. Anyone flying above the radar will be instant suspects, especially if they are 30 year old Iranians married to pop stars and living in a 72 million dollar home.
Should we start trading off the Corruption Perception Index ? http://cpi.transparency.org/cpi2013/results/
Do a Malaysia (ranked 53) vs Indonesia (ranked 114) trade ?
As I type, the Russian Ruble is nearing her historical high (and Russia is ranked 127 !), after promising to bail Ukraine out and dismissing a rate hike on their part.
Methinks we are just on the cusp of something here, the outflows that began in May last year culminating into exodus as holes start to show and fingers start to point and skeletons fall out of the closet.
Be safe and happy new year.
Hi Tradehaven, Gong Xi Fa Cai!
Do you see an emerging market crisis with all the devaluations, inflation, interest rate hikes, drastically slowing economic growth going on in these countries?
I am in the midst of checking their historical debt to GDP ratios, so far Argentina seems to be much lower than the late 90s.
Hey Gallen,
When it comes to a USD crunch, it is not so much about the debt/gdp anymore don’t you agree ? It is just inability to sell enough of your currency to willing buyers to raise USD.
Anyway the reason for the lower debt/GDP is because of their default and moratorium before.
Once bitten, twice shy.
As for the crisis…
Chris Arnade, The Guardian
EM Crisis usually follow this path
1) Equities dump
2) FX dumps
3) FI dumps
4) Central banks raise rates
5) Economy dumps
6) FX dumps more
*INDIA RBI UNEXPECTEDLY RAISES BENCHMARK RATE TO 8% FROM 7.75%
Jan. 29 (Bloomberg) — Turkey’s central bank raised all its
main interest rates at an emergency late-night meeting in an
effort to shore up the lira, resisting government pressure and
reversing years of policy aimed at stoking growth.
And we also had South Africa raise yesterday or so.
There is a high risk indeed.
Thanks Tradehaven,
I suppose these countries will be announcing FX swaps with the Fed soon to cope with the liquidity crisis.
Have a great year ahead!
It’s Chinese New Year ! Not Christmas.
Isn’t it a perfect time for the world to renew their allegiance to the US before the Santa Fed comes in ? Territorial disputes better take the right side.
Anyway, it is not the Fed’s problem like they would say, because their main objective is to the US economy. Probably IMF, if you ask me.