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Turkish lira tanks to record lows on Erdogan’s win

 

Tuesday, May 30, 2023

Today’s headlines

What’s happening: The TRY/USD forex pair fell to a new low on Monday following Turkey’s Presidential elections.

What happened: President Tayyip Erdogan celebrated a run-off victory in the 2023 elections.

While the Turkish lira declined steeply, the country’s major stock index climbed on Monday.

Why it matters: Markets had witnessed a major selloff in Turkey’s international bonds after Erdogan’s unexpected strong showing in the first round of the elections two weeks back.

The country’s dollar bonds fell to their weakest level in at least six months last week. Credit default swaps, which are a barometer of the cost of insuring exposure to Turkey’s debt, climbed to a seven-month high.

During his victory speech, Erdogan said high inflation was the most urgent issue for Turkey, reassuring that it would ease.

The TRY/USD forex pair maintained its downward trajectory through last week to reach a new low on Monday, after Erdogan extended his authoritarian rule into a third decade.

The lira has lost around 77% versus the US dollar over the past five years. The TRY/USD forex pair settled lower at 20.1038 on Monday. Trading remained light on Monday, with several markets in Europe and the US closed for holidays.

However, the Turkey ISE National 100 rose around 4.1% to 4,768.56 on Monday.

What to watch: Traders will monitor comments from Erdogan regarding inflation and economic growth, which will impact the Turkish lira ahead.

Markets also await data on Turkey’s imports, exports and balance of trade today. Imports to Turkey are expected to decline 4.5% year-over-year to $28.2 billion in April, while exports are projected to tumbled 17.2% year-over-year to $19.3 billion. Analysts expect the country’s trade deficit to widen by 44% year-over-year to $8.9 billion in April, from $6.1 billion in the year-ago month.

The markets today

European stocks will be in focus today ahead of a basket of economic reports

Context: European stocks closed slightly lower on Monday after US President Joe Biden and House Speaker Kevin McCarthy reached an agreement to increase the nation’s debt ceiling.

Details: The STOXX Europe 600 Index had fallen to an eight-week low last week, before cutting back some losses on Friday. Tech stocks had risen on Friday, after Nvidia reported strong quarterly results.

European stocks settled mostly lower on Monday, with tech stocks declining around 0.7%, although oil and gas stocks edged higher.

Traders remained cautious amid inflation concerns and prospects of another interest rate hike by the European Central Bank.

Sentiment was supported by President Joe Biden and House Speaker Kevin McCarthy reaching a ceiling deal, although the agreement will now go to the House and Senate. “The agreement prevents the worst possible crisis, a default, for the first time in our nation’s history,” Biden said at the White House.

The STOXX Europe 600 Index fell 0.12% to close at 460.87 on Monday, while Germany’s DAX 40 and France’s CAC 40 lost 0.20% and 0.21%, respectively. London’s stock exchanges remained closed due to a bank holiday.

What are expectations: Traders await economic reports on economic sentiment indicator, consumer confidence indicator and industry confidence indicator from the Eurozone today.

The economic sentiment indicator is expected to edge lower to 99.1 in May, from 99.3 in April, while the consumer confidence indicator is projected to rise by 0.1 points to -17.4 in May. The industry confidence indicator, which declined to -2.6 in April, is expected to decline further to -3.0 in May.

Other Markets: US trading indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1%, 1.30% and 2.58%, respectively.

The news shaping the markets

Russia’s forces targeted Ukraine’s Kyiv for the third consecutive night. The news sent the safe-haven US dollar index slightly higher this morning.


Australia’s building permits fell 8.1% to 11,594 units in April, following a 0.1% decline in the previous month, which exerted pressure on the AUD/USD forex pair.


The Philippines said its producer prices rose by 2.3% year-over-year in April, after a 2.5% increase a month ago. Despite the easing of producer inflation, the PHP/USD pair fell in forex trading this morning.


Japan’s unemployment rate declined to 2.6% in April, from March’s 14-month high of 2.8%, lending support to the JPY/USD forex pair.


New Zealand’s building permits declined by 2.6% to 2,757 in April, versus a 6.6% increase in the prior month, sending the NZD/USD pair lower in forex trading this morning.

What else to watch today

South Africa’s private sector and money supply M3, Spain’s consumer price inflation and retail sales, Eurozone’s loans to private sector, M3 money supply, loans to households, consumer price inflation expectations index, selling price expectations, and services confidence indicator, Italy’s producer price inflation and industrial sales, Brazil’s IGP-M inflation, producer prices and government revenues, Spain’s business confidence and value of loans, Canada’s current account, as well as US S&P CoreLogic Case-Shiller 20-city home price index, FHFA house price index, Dallas Fed manufacturing index and CB consumer confidence.


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