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Turkey Seeks to Avert Financial Meltdown as Lira Continues to Weaken

Turkey Seeks to Avert Financial Meltdown as Lira Continues to Weaken

Friday, 25 May 2018 12:18 PM Current | Bio | Archive

Emerging Markets: Turkey

The Turkish lira has continued to weaken.

The rate hike of the Turkish central bank is presumably not seen as slowing credit growth and changing currency economic fundamentals sufficiently.

Clearly, a 3 percent rate hike is not enough to offset other risks in the Turkish economy in the minds of international investors.

The question now is whether Turkey can prevent a full blown financial crisis.

Fitch Ratings said another hike could be possible next month if the currency continues to slide while economists at UBS argue that the central bank will need to deliver another 200 to 250 basis points of tightening.

North Korea Crisis

President Trump canceled the summit with North Korea’s President Kim, which was planned for June 12 in Singapore, in the form of a letter personally addressed to North Korea’s President Kim himself.

A senior U.S. administration official later gave further details, saying North Korea had shown “a profound lack of good faith” and there were a series of "broken promises", including when the White House sent the deputy chief of staff to Singapore to meet North Korean diplomats ahead of the summit, the North Koreans didn't show up. They simply stood us up.

Maybe it could be helpful taking note that “around” the “cancellation” event there was a lot of “name-calling” that followed, among other things of course, North Korea’s using some fairly “colorful” language to describe U.S. Vice President Pence.

After hosting an emergency National Security Council meeting in the early hours of today, South Korea’s President Moon said: “I am embarrassed. It is very regrettable to see that the North Korea-U.S. summit will not be held on June 12. I expect the two leaders to resolve [problems] through more direct and close dialogue.”

In fact, the problem is that the Blue House, which is the name given to the executive office and official residence of the President of South Korea, knew nothing about Trump's cancellation which shows the South Korea-U.S. alliance is at a very low ebb.

Moon's government says it will continue to push for talks with the North in cooperation with the U.S. “We believe that all of the related countries are sticking to solve problems through dialogue,” said Baik Tae-hyun, spokesperson for the Ministry of Unification.

European Politics

European Politics is, once again, something investors could do well to take a glance at.

Remarkably, it’s not the Italians this time. This time, it’s the Spanish and it is not contagion from the Italian crisis either. This is an entirely domestically generated issue.

Spain’s Prime Minister Mariano Rajoy was threatened today with two separate no-confidence motions, after a graft trial involving 29 members of his party in which a judge questioned the credibility of his testimony.

The opposition Socialists have presented their motion to parliament, while the center-right Ciudadanos - Rajoy’s former ally - issued him with an ultimatum stating: “If Rajoy does not call snap elections we would be ready to put forward (our own) motion of no confidence in order to hold elections.”

Yes, early elections in Spain are on the cards. Alternatives could be a change of Prime Minister but no change of government, a change of government or just the status quo.

Conclusion, first Italy and now Spain, both have the real potential for causing a renewed broad-based crisis in the Euro area, which is important for investors, euro related and others, as it could oblige the ECB to delay the exit from its massive bond buying plan.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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The Turkish lira has continued to weaken. The question now is whether Turkey can prevent a full blown financial crisis.
turkish, lira, financial, crisis
Friday, 25 May 2018 12:18 PM
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