This is likely something that flew under your radar today, but Turkey has got a serious problem (or three).
For one thing, headline inflation in October just printed the highest since October 2008 while core CPI jumped to 11.82% y/y, the highest since January of 2004.
Obviously, that presents all kinds of problems for the CBT. “The central bank policies are highly inadequate to say the least,” TD’s head of EM research remarked on Friday, adding that “this will cost them sorely in terms of delayed action that will be needed.”
“Against this backdrop of a worsening inflation narrative, also relative to EM peers and medium-term inflation expectations remaining de-anchored, CBT will likely maintain its tight policy stance for an extended period as it has guided recently,” Barclays writes, in a short note out today, before noting that “the tighter-for-longer policy stance and hawkish bias have had little effect on the inflation outlook so far, and the CBT could come under increasing market pressure as Turkey compares unfavourably with other high-yielding EMs based on the evolution of inflation surprises, and markets’ forgiveness likely reduced by mounting diplomatic tensions with the West.”
Right. And speaking of Turkey’s problems with the West, Reza Zarrab (the gold trader who you might recall is implicated in a truly ridiculous plot to evade U.S. sanctions on Iran), apparently invoked the name of everyone’s favorite autocratic goblin during phone calls detailed in a Monday filing in the U.S. District Court in Manhattan. Here’s Reuters:
It said one call occurred on April 16, 2013, when Zarrab spoke with another defendant about his efforts to buy a bank to establish a conduit for Iranian transactions.
Prosecutors said Zarrab and Erdogan, then Turkey’s prime minister, had spoken four days earlier at a wedding.
“I explained it that day at the wedding,” Zarrab told the co-defendant, according to prosecutors. “I will go back and will say, Mr. Prime Minister, if you approve, give me a license, I will go though BDDK (the Turkish bank regulator) even if I bought the bank anyway.”
So that’s no good either and worse still, it looks like Zarrab might have pleaded guilty. Here’s a short bit from the New York Times:
In court papers filed on Monday, lawyers for Mr. Zarrab’s co-defendant, a Turkish banker named Mehmet Hakan Atilla, wrote that Mr. Zarrab “has essentially not participated in the case” since September, and it seemed “likely that Mr. Atilla will be the only defendant appearing at trial.”
There were other telling signs of inaction: At midnight on Monday, Mr. Zarrab’s lawyers allowed a deadline to pass without filing court papers that would have allowed him to challenge the admissibility of key government evidence against him.
The lawyers also did not submit proposed jury instructions or questions to be asked of prospective jurors when they are selected for the trial, which is scheduled to begin on Nov. 27.
Erdogan is of course furious. I mean he’s always furious about something, but this is a particularly contentious issue even as matters related to Erdogan go. This is how concerned he is about this situation (from The Washington Post):
Erdogan’s campaign to free Zarrab has been extraordinary. He demanded his release as well as the firing of Preet Bharara in a private meeting with then-Vice President Joe Biden on Sept. 21, 2016, in which U.S. officials say half the 90-minute conversation was devoted to Zarrab. Erdogan’s wife pleaded the case that night to Jill Biden. Turkey’s then-justice minister, Bekir Bozdag, visited then-Attorney General Loretta E. Lynch in October to argue that the case was “based on no evidence” and that Zarrab should be released.
Erdogan appealed personally about the matter in his last two phone calls with President Barack Obama, in December and early January, former aides say. “Our operating assumption was that Erdogan’s obsession with the case was that if it moved forward, information would come out that would damage his family, and ultimately him,” said one former senior Obama official.
Of course there’s a link to Erdogan’s arch nemesis and Pennsylvania resident Fethullah Gulen, who he says is behind the whole thing. Erdogan claims Gulen was the mastermind behind the leaked evidence about Zarrab in 2013 and as the Post also details in the same piece linked above, “when Erdogan met with Biden a year ago, he claimed bizarrely that Preet Bharara was a Gulenist tool.” Rudy Giuliani is involved in this too.
And yes, this is all just as ridiculous as it sounds.
Finally, if you’re wondering whether this probably has links to the recent diplomatic crisis involving the detention of U.S. consular employees, the answer is “of course it does.”
So between the inflation number and the possibility that Erdogan’s name was actually bandied about in phone calls made by Zarrab who now may be a cooperating witness, the lira is all to hell:
Worse than that, yields are spiking by a harrowing 30+ bps:
So yeah, rough day.
And as for Erdogan, he just wants to talk about terrorists. And their “nests”.
On that note, we’ll leave you with what he screeched to supporters in a speech delivered earlier today in Manisa:
It’s our natural right to crush terrorists wherever they are. Currently, many areas of Iraq and Syria are terror nests. We have to defeat terror threats emanating from these areas at their source. And we don’t have to get permission from anybody.
And by terrorists he obviously means the Kurds. The Kurds have easily been the US’s best ally in that shithole and are probably going to get the short end of the stick. Again.
If the Kurds best ally,why did america left alone Barzani ,and let iran occupy Kurdistan ?