FX markets

Renewed defeat in Istanbul increases the pressure on Erdogan

The new mayor of Istanbul is Ekrem Imamoglu – and this time for real. The candidate he ran against, Binali Yildirim of the AKP, has already conceded defeat, and President Erdogan has congratulated Imamoglu on his success. For the AKP, and above all for the head of state, the loss of the economic powerhouse to the opposition is a problem. No less a person than Erdogan himself is rumoured to have said: “Whoever wins Istanbul, wins Turkey.” Imamoglu is undoubtedly still well away from achieving that, but having lost the largest city in the country, the AKP has also lost a major source of money with which to supply favourites and others upon which favour is to be bestowed with lucrative jobs and contracts. In addition to this, the AKP now no longer holds the reins in any of the three largest cities in the country. Even if many pundits…

Turkish Lira in difficult waters

This year, the Turkish Lira has to date made no headway. On the contrary, the currency has lost a good 10% against the Euro since the beginning of the year. The list of factors dragging it down is anything but short. Global trends play a role, admittedly, but this should not detract from the fact that the major challenges to the Lira are to be found on the home front and, as was the case last summer, the difficulties are indeed home-grown. Against the backdrop of the annulled results of the local elections in Istanbul, investors have become ever more concerned that Turkey under Erdogan is distancing itself (still) further from basic democratic principles. It is precisely these worries that are damaging the reputation of the Turkish central bank, on top of which diplomatic relations with the US are tense. Washington is threatening that the NATO partner will face consequences…

China, the USA and the “Potemkin Villages” of FX stability

The USA and China are on the verge of making a breakthrough to a new trade treaty. The subject of “foreign exchange” is said to play a key role and there are apparently “exactly defined structural agreements” in place – we wait with bated breath to see what they look like. The speculation to date is that China has promised to take the lid off its interventions in the foreign exchange market. Meaning the emphasis is not on forgoing interventions and also not on ex-ante information or even US permission, but simply on making the interventions more transparent after the event. That said, we should not forget that China has long since ceased to keep the Yuan on the desired track only by resorting to the entrance-level model of forex-policy, namely simply cash market interventions. The structure today is far more complex and includes a mixture of outright, forward and…

Shift in sentiment: currency markets react calmly, while bond markets do not

The view taken by financial market participants vis-a-vis the global fundamental environment has changed considerably in recent months. While economic momentum in the eurozone had already eased noticeably during 2018, estimates in particular for the growth prospects of both the US and the global economy have become less favourable in the past few weeks. Potential reasons for this are easily identifiable: on the one hand, we have the trade disputes between the world’s most important economic powers, the longest government shutdown in US history and the uncertain outcome of Brexit, to name a few. Various central banks have reacted to the new environment impacting on monetary policy. Examples include the downward revision of growth prospects and warnings about heightened risks for the still dominant economic outlook. On the other hand, central banks such as the Federal Reserve and the Reserve Bank of Australia have rejected the idea of previously envisaged…

Bleak monetary conditions in Switzerland

The only thing that the monetary conditions in Switzerland currently have in common with the wonderful winter landscape in many areas of the Alpine republic is the frosty temperatures. Not only did the economic momentum experience a severe setback in the autumn of 2018, the hopes of a return to the robust growth rates recorded between spring 2017 and mid-2018 have now also vanished. The same applies to the vague assurance that the inflation rate would move visibly close to the Swiss National Bank’s target level in the foreseeable future: even the economists of the SNB now expect the 2% threshold to be reached in the second half of 2021 at the very earliest. The domestic leads were not the only factors spawning doubts among the Swiss central bankers over a turnaround in key interest rates towards the end of this year – which until recently had been considered possible….

Eurozone gaining ground: ECB crowding-out effects dwindling

Having only recently focussed on the latest portfolio flow data from the USA, we are now casting a glance at the Eurozone. As is the case in the USA, thus far “only” data up to and including November 2018 have been released, but the trends for the year are nevertheless clearly discernible. While the USA has in recent years benefited from massive repatriation of capital, in the Eurozone capital outflows outweighed, on the part of both foreign investors and above all their local counterparts. In the years 2015 to 2017 this led to capital totalling EUR 940 billion being withdrawn from Euroland, whereby capital exports by local investors came to no less than EUR 1.4 trillion. In 2018 a recovery set in at long last. Domestic investors continued to send capital abroad, but the volume amounted to EUR 155 billion and was thus well down on the figures seen the…

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