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TTurkish Recep Tayyip Erdoğan's battle against currency speculators is a clbadic Pyrrhic victory. The so-called strong strong man's strong showing demonstration on Wednesday prevented investors from getting rid of the read, but at a huge cost in the short and long term. That Turkey will be damaged is without a doubt. All we doubt is the seriousness of this damage and the fact that the fallout will be felt elsewhere. Given the fragility of the world economy, all the chances of it will be.
The latest installment of a long-running crisis has as a backdrop Erdoğan is facing this week's important local elections as the Turkish economy is in recession. The Turkish president condemned Donald Trump's decision to recognize Israeli control over the Golan Heights, seeking support, which proved to be a spectacular goal in convincing foreign investors that Ankara was in conflict with Washington . The reading has plunged.
Erdoğan reacted by preventing speculators from taking the exit by preventing foreign banks from having access to the read, which they needed to close their positions. This put an end to the currency race, but at a cost: borrowing costs soared, as did the cost of Turkish debt insurance against default. The stock market plunged 6% on its worst day in almost three years.
The plan is to lift the restrictions once the weekend elections are over, but the damage is already done. Turkey relies on foreign investors to finance the large deficit of its current account. Burning your fingers is not the smartest strategy in the long run. Interest rates will stay high longer, worsening the recession and slowing the pace of recovery. A complete race on the read can not be excluded.
The badumption on the financial markets is that Turkey is an isolated country and that there will be no effects of training. This is what markets always say. But the global economy is slowing down, central banks have suspended their plans for interest rate hikes, investors are willing to accept negative returns for the security of German bonds and bonds yields American at 10 years are lower than those of a three-month bond. – in the past, a sign of recession in perspective. Sometimes it only takes a spark and Turkey could easily provide it.
Reasons to question the gloominess of Brexit
The sluggishness of Brexit extends businesses to consumers, according to the latest snapshot of the main street. Recent reliable data from the Office for National Statistics suggest that individuals continued to spend in the first two months of 2019, but the CBI says its monthly survey suggests that the mood has become much more cautious in March.
Given the stalemate in Westminster and the daily warnings about impending Armageddon, it would not be entirely surprising if consumers began to control their spending. Nevertheless, there are reasons to wonder whether the situation is as bleak as the IWC's survey of the distribution trades suggests.
For starters, the UK has a record employment rate, the lowest unemployment rate since the mid-1970s and wages are rising faster than prices. These factors probably have more impact on spending habits than Brexit.
In addition, although retailers reported a decline in sales compared to last year, Easter and Mother's Sunday had occurred earlier last year, boosting spending in March. Sales for the time of the year were stronger in March than in February, reaching their highest level in 10 months.
US-Chinese trade: premature optimism?
Trade talks between China and the United States continue in Beijing this week and at first glance, the unexpected reduction in the US monthly trade deficit has come at an opportune time. One of the reasons for the rise in Wall Street shares since the beginning of the year is the White House's willingness to reach an agreement, and a smaller trade deficit in the United States should allow Trump to adopt a more flexible line.
All this seems a bit premature. Trump is unlikely to be influenced by one-month numbers, especially when they tend to turn a lot. There was no evidence that the smallest deficit resulted from the opening of China's markets to US products subject to protectionist pressures. The deficit has been reduced due to a sharp drop in imports, suggesting that the US economy is slowing. Will this make Trump more likely to be more emollient? This seems unlikely.
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