Soft equities, lower bond yields, TRY and RUB in an FX race to the bottom.
That’s how SocGen’s Kit Juckes described Wednesday so far and it underscores the idea that the ruble and lira are, like Ron Burgundy, “kind of a big deal.”
I talked at length about this over at Dealbreaker on Tuesday in “This Is The Stuff Crises Are Made Of” and one of the points I made in that post was as follows:
Speaking of Syria, you’re reminded that Trump, Putin and Erdogan all have a stake in the outcome there. American, Russian and Turkish boots are on the ground and Washington, Moscow, and Ankara are all keen to advance their own interests, efforts which are complicated immeasurably by the fact that Putin and Erdogan both have deep ties to the Mueller probe (Erdogan for his connections to Flynn and Putin for obvious reasons).
Don’t let all of those links be lost on you. Indeed it was just yesterday when Erdogan made it clear that he has no intention of letting Russia dictate the future of Afrin (in Syria) where the Turkish military launched an offensive recently to counter the YPG (part of Erdogan’s never ending battle against the YPG who he equates with the PKK, his mortal enemy).
The lira fell to a fresh record low on Wednesday and as Bloomberg’s Benjamin Dow notes, the Syria turmoil only compounds the problems. “Turkey’s lira set (yet another) record low against the dollar — never mind the small beat in March current-account data — and it won’t get much better in the near term, as potential U.S. strikes against Syria threaten to compound the central bank’s inability to raise rates and fight still-elevated inflation,” Dow writes, before reminding you that although the lira gained some 9% after Trump hit Assad with missiles last year, the circumstances were different.
“Oil was falling, and a four-month drop drove CPI under 10%,” Dow recalls, adding that “the lira may not be so lucky this time as just about all of those factors are missing — more hawks like Pompeo and Bolton are closer to the U.S. president’s ear on military force, crude is being supported by more uncertainty, and inflation is looking stubbornly stuck in double digits.”
Right. And you can bet your ass that Erdogan is not about to back down when it comes to his crazy ass position on FX and rates. “Turkey will continue its path [because] artificial movements shall fade away,” Economy Minister Nihat Zeybekci said today in Istanbul, before insisting that “what’s happening in lira is temporary.” Here’s “what’s happening” in the lira:
Capital Economics is predicting a 100bps hike in the late liquidity rate by the hamstrung CBT on April 25. “If the MPC doesn’t tighten policy, history suggests that the fall in the lira will gather pace in the immediate aftermath of the decision, which could force policymakers to hold an emergency meeting to raise rates,” they write, in a new note.
As for the ruble, it’s down a fifth day, bringing its losses on the week to a harrowing 9%.
10Y yields in Russia have jumped 63bps this week to 7.70%. It’s a shit show.
“The immediate trigger for today’s risk aversion is the possibility of a reaction to the suspected chemical attack on civilians in Syria,” the above-mentioned Kit Juckes, goes on to say.
If that situation escalates, I’m not sure it’s going to do much to help Russian assets given the escalating tensions with the West, manifested on Tuesday at the U.N. when Moscow vetoed a Security Council resolution to investigate and assign responsibility for the chemical attack in Douma.