The Daily Update - Can Turkey give thanks...?

Happy Thanksgiving to those of you celebrating today. Donald Trump’s call for unity in his Thanksgiving holiday address was well received; we do hope that divisions globally begin to heal.

Today should be a typically quiet market day with the US out feasting on ~46 million turkeys. Obama performed his last ever turkey pardon as president with Tot and back-up ‘vice-turkey’ Tater living to fight another day. Meanwhile back in the UK, one of our colleagues is still trying to track down a Meleagris gallopavo.

Sticking with Turkey, recent ‘global uncertainty and volatility’ continue to take their toll on the Turkish lira which has plummeted to an all-time low against the dollar. With the lira’s ~10% collapse this month coupled with Turkish President Erdogan’s call to not provoke his intentions of keeping borrowing rates low to spur growth, the central bank was under increasing pressure at their policy meeting today.

Citing the weaker currency's impact on inflation the central bank held rates last month. However, in a bid to defend the currency and investor sentiment, the central bank today defied market expectations by hiking the repo rate by 50bps to 8%, and raised the lending rate to 8.5%, from 8.25%; the first increases since 2014. The borrowing rate was held at 7.25%; for obvious reasons.

The lira did recover somewhat immediately after the decision, however soon spiked back to new record lows, at time of writing. As regular readers will know, we have never held Turkish debt, the main reason being that the country has a Stratton Street NFA score of only 2 stars; thus not within our investable universe. We also calculate that the region’s bonds are either close to fair value, or expensive in relative value terms.

Hypersensitive markets have seen the dollar’s strength pretty much wipe out most emerging currencies since Donald Trump-ed; the Philippine peso for example is trading at levels last seen in 2008, and the Malaysian ringgit has plummeted almost 6% this month to a record low level. The only emerging currencies to have actually remained resilient against the dollar’s onslaught are the Russian rouble, Taiwanese dollar and to some extent the Chinese renminbi. Comparatively the renminbi spot rate is down less than 2% since the day of the US elections; and has strengthened against the CFETS basket of currencies.

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