Turkey Raises Policy Rate to 40% Amid Soaring Inflation Of 60%

Central Bank

Economic

Summary:

Turkey's central bank delivered another huge interest rate hike on Thursday as it tries to curb double-digit inflation that has left households struggling to afford food and other basic goods.

The bank pushed its policy rate up 5 percentage points to 40%, marking its sixth big interest rate hike in a row focused on beating down inflation that hit an eye-watering 61.36% last month.

However, the bank said its rate hikes would soon end.

"The current level of monetary tightness is significantly close to the level required to establish the disinflation course," the bank said. "Accordingly, the pace of monetary tightening will slow down and the tightening cycle will be completed in a short period of time."

President Recep Tayyip Erdogan has long been a proponent of an unorthodox policy of cutting interest rates to fight inflation and has fired central bank governors who resisted his rate-slashing policies.

That runs counter to traditional economic thinking, and many blamed Erdogan's unusual methods for economic turmoil that has included a currency crisis and an increasingly high cost of living.

Other central banks around the world have raised interest rates rapidly to target spikes in consumer prices tied to the rebound from the COVID-19 pandemic and then Russia's war in Ukraine.

Following Erdogan's reelection in May, he appointed a new economic team, which has quickly moved toward reversing his previous policy of keeping interest rates low.

The team includes former Merrill Lynch banker Mehmet Simsek, who returned as finance minister, a post he held until 2018, and Hafize Gaye Erkan, a former U.S.-based bank executive, who took over as central bank governor in June.

Under Erkan's tenure, the central bank has hiked its main interest rate from 8.5% to 40%.

Source: Nikkei Asia

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Alex

Economic

Central Bank

China will likely wait until early next year to cut policy rates to support the economy, though other forms of easing before the end of 2023 via trims to shorter-term rates or reserve ratios are still in the cards.

That's according to the latest Bloomberg survey of economists, in which respondents said they see the rate on China's one-year medium-term lending facility staying put at 2.5% by the end of the year, compared with the previous median estimate of a five basis point trim. Any reductions are instead likely to happen in the first quarter: 12 of 20 economists surveyed see the People's Bank of China cutting the rate on its one-year policy loans then by five basis points or more.

"Monetary policy is playing second fiddle to fiscal policy in supporting the recovery," wrote Duncan Wrigley and Kelvin Lam, China economists at Pantheon Macroeconomics Ltd, in a research note this week.

The survey results suggest Chinese policymakers may be done cutting that key rate this year. While recent data has still shown some trouble spots for the world's second-largest economy, overall it's on track to achieve or surpass the government's official annual growth goal of around 5%. Respondents to the latest survey expect the economy to grow 5.2% this year and then moderate to an expansion of 4.5% in 2024, unchanged from last month's poll.

The PBOC earlier lowered the MLF rate twice, in June and August, to help a recovery that had lost steam. Room to maneuver on rates remains somewhat constrained, given narrowing profit margins for banks before their savings rate drops again. A rise in time deposits has also pushed up costs for lenders.

Economists are still betting the government will consider adding liquidity to the financial system through other means, particularly to ensure the issuance of sovereign debt for infrastructure projects that is supposed to help growth.

"An RRR cut is quite likely, on top of additional MLF funding," wrote the Pantheon economists, citing the need to facilitate that government bond issuance.

The government is also focusing on measures to help the beleaguered real estate sector, a major challenge for the economy. China may allow banks to offer unsecured short-term loans to qualified developers for the first time in a major push to ease the property crisis, Bloomberg News reported earlier.

Those polled by Bloomberg see the reserve requirement ratio for major banks being cut by 25 basis points this quarter, unchanged from last month's survey. They also projected a five-basis point trim to the central bank's seven-day reverse repurchase rate, a short term policy rate. Respondents to last month's survey expected a 10 basis-point cut.

An RRR cut before the end of the year was also floated in a front page report in the Shanghai Securities News this week, which cited analysts.

"The post-reopening bounce that China's economy saw this year is fading," said Erica Tay, economist at Maybank Investment Banking Group. "What's left of underlying demand is less than robust, and fiscal support will need to be more forthcoming to boost GDP growth next year."

Tay added that the "zeal to invest" among businesses will be worth watching in 2024.

"Whether entrepreneurial confidence comes back in a big way will have a lasting impact on job creation, wages and private consumption," she added.

Other key highlights of the survey:

Economists also delayed projections for cuts to China's one-year loan prime rate. They now see that rate holding firm at 3.45% until the second quarter of 2024, when the median expectation for a cut is five basis points.

The five-year loan prime rate, a reference for mortgages, is likely to hold at 4.2% until next year.

The consumer price index is expected to rise 0.3% in the last quarter of 2023, slowly lower than an earlier forecast of 0.5%.

Producer prices are seen falling 2.3% in the fourth quarter, slightly worse than an earlier estimate of a 2.1% decline.

Exports are likely to drop 2.5% in the fourth quarter, far worse than an earlier expectation of a 0.1% increase.

Imports are expected to decline 0.4% in the period, improving from the previous projection of a 3% decrease.

Source: Bloomberg

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Damon

Stocks

Thanksgiving week ushers in the holiday season for Americans. It also kicks off a seasonal bullish bonanza for investors who look to historical probabilities before stuffing their portfolios.

According to Yahoo Finance data and calculations, the S&P 500 has ended the week green three-quarters of the time going back to 1961 — with an average and median gain of 0.3%. For the entire week, the S&P 500 has been positive two-thirds of the time, allowing investors to harvest a median gain of 0.75%.

Why Thanksgiving Week Is Typically Bullish for Stocks_1

Looking through the history books, Wednesdays just prior to T-day have delivered the best historical gains of the week. By far.

In the midst of the Global Financial Crisis, 2008 was the best year for Thanksgiving week — with the S&P 500 posting a gain of 12.0%. The worst year was three years later in 2011, which suffered a 4.7% loss.

Jeff Hirsch at the Stock Trader's Almanac first noticed the seasonal turkey-day tendency in 1987. Since then, the week's pattern has become a bit less bullish — particularly on Wednesdays and Fridays. That's because, incredibly, both of those two weekdays were green in 34 of the 35 years prior to 1987.

Nonetheless, if an investor bought the S&P 500 the Friday before Thanksgiving and sold it the Friday after beginning in 1961, they'd be up 42% as of last year — a compounded annual growth rate of 6.2%, according to Yahoo Finance data.

It might not be better than being invested continuously, but not bad for only a few days of exposure a year.

When it comes to sectors, energy has fared the best — posting median gains of 1.5% with a 74% win rate since 1999. Close behind, the sectors for materials, tech, consumer discretionary, and communication services have all allowed investors to gobble up median gains of 1.0% or more.

Financials have fared the worst over time — up only 0.2% with a win rate of 57%. Utilities, healthcare, real estate, and industrials follow close behind with only small wins. When it comes to sector performance during the holiday week, it's feast or famine.

Why Thanksgiving Week Is Typically Bullish for Stocks_2

But the bullish seasonals don't end this week, as Hirsch pointed to a number of patterns that persist into the new year.

"November [to] January is the year’s best consecutive 3-month span," wrote Hirsch, adding, "Then there’s the January Effect [of] small caps outperforming large caps in January, which begins in mid-December."

Finally, capping the holiday season and kickstarting the new year is the famous "Santa Claus Rally," which was first identified and published by Yale Hirsch (father of Jeff) in 1972.

Larry McMillan, founder of Option Strategist, had the bright idea of combining all these seasonals into a super-seasonal trade — when investors can buy the Tuesday before Thanksgiving and hold through the second trading day of the new year.

Since 1950, the S&P 500 is up nearly 80% of the time over this roughly six-week time frame — posting an average gain of 2.57%.

Source: yahoo.com

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Samantha Luan

Economic

Singapore’s core inflation accelerated in October for the first time since January, supporting the central bank’s expectation of near-term upside risk as services and utility costs rose.

Singapore Core Inflation Quickens for First Time in Nine Months_1

Picture: Singapore Core Inflation Rate

The core measure, which excludes housing and private transportation costs, quickened to 3.3% from a year ago, official data showed Thursday. The gauge that’s tracked by the Monetary Authority of Singapore cooled to an 18-month low in September.

Last month’s reading compares with a median 3.1% gain in a Bloomberg survey and 3.0% pace in September while the all-items inflation print gathered pace at 4.7% from 4.1% the prior month.

Authorities see some near-term volatility to inflation, though the broad trajectory is for continued moderation after the first quarter, according to MAS deputy managing director and chief economist Edward Robinson at a briefing on Wednesday.

Sticky core inflation could delay the global manufacturing rebound anticipated by the government in 2024 as monetary authorities maintain elevated borrowing costs to quell price pressures.

The MAS’ policy stance is appropriate as it stated in October when it kept monetary settings steady, according to Robinson. Singapore’s central bank uses the exchange rate instead of interest rates as its main policy tool.

Higher gas and electricity prices were due to rise this quarter in Singapore and water rates are set to increase in April, the latest price pressures to hit the city-state where rentals remain elevated and even cheap hawker meals are disappearing.

The MAS and the Ministry of Trade and Industry core inflation to average around 4% this year, while they see the all-items index to come in at around 5%. For 2024, the core gauge is forecast to average 2.5%–3.5% and the broader measure to be in a range of 3%-4%.

Source: Bloomberg

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Alex

Commodity

• U.S. weekly jobless claims fall; labor market still slowing

• U.S. 10-year Treasury yields at two-month low

• U.S. consumers' inflation outlook rise for 2nd month - UMich

• Spot gold may revisit Nov. 21 high of $2,007.29 - Technicals

Gold prices rose on Thursday, hovering close to a key $2,000 per ounce level as a weaker U.S. dollar and lower Treasury yields buoyed demand for bullion.

Spot gold was up 0.4% at $1,996.84 per ounce, as of 0747 GMT, after hitting a three-week high of $2,007.29 on Tuesday.

U.S. gold futures gained 0.3% to $1,998.20.

Gold Gains as Lower US Dollar, Bond Yields Lift Sentiment_1

"The anticipation of this effective pivot towards interest rate hike cycle peak is translating to ongoing softness in the U.S. dollar and the longer-dated U.S. yield which will support gold prices, at least in the short term," said Kelvin Wong, senior market analyst for Asia Pacific at OANDA.

The dollar (.DXY) was down 0.2% against its rivals after gains in the previous two sessions, making gold less expensive for other currency holders.

The benchmark U.S. 10-year Treasury yields fell to a two-month low on Wednesday.

The number of Americans filing new claims for unemployment benefits fell more than expected last week, but that likely does not change the view that the labor market is slowing amid higher interest rates.

Traders widely expect the U.S. Federal Reserve to leave rates unchanged in December, but dialled back expectations of rate cuts in 2024 after the jobless claims data, according to CME's FedWatch Tool.

Lower interest rates decrease the opportunity cost of holding gold.

Fed officials agreed at their last policy meeting that they would proceed "carefully" and only raise interest rates if progress in controlling inflation faltered, the minutes of the Oct. 31-Nov. 1 gathering showed on Tuesday.

Meanwhile, U.S. consumers' inflation expectations rose for a second straight month in November, a survey released Wednesday showed.

Spot gold may revisit its Nov. 21 high of $2,007.29 per ounce, as it may have completed a correction from this level, according to Reuters technical analyst Wang Tao.

Spot silver rose 0.4% to $23.70 per ounce, platinum climbed 0.4% to $926.11 and palladium was steady at $1,057.96.

Source: Reuters

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Kevin Du

Political

Economic

• Germany’s constitutional court ruled last week that the government’s move to re-allocate emergency debt taken on during the pandemic to the current budget.

• This has left a 60-billion-euro funding gap in the government’s budget which is especially hitting climate policies.

• The crisis has highlighted divisions between coalition partners, and no immediate solution has been found so far.

Germany’s budget is in trouble.

Last week, the constitutional court ruled that it was unlawful to re-allocate unused debt originally designated for emergency Covid-19 pandemic funding to current spending plans.

This week, the finance ministry froze spending across all ministries.

But that could be just the tip of the iceberg as financial woes could lead to political ones, and even potentially endanger the future of Berlin’s coalition government.

Germany didn’t get to this point overnight, however — in ways, the roots of the current crisis even predate the pandemic. And that is because of Germany’s so-called debt brake.

A long time in the making

Enacted in 2009, the debt brake limits how much debt the government can take on, and dictates the maximum size of the federal government’s structural budget deficit. The rules say it can be no bigger than 0.35 percent of Germany’s annual GDP.

Since the global financial crisis, the debt brake has been the cornerstone of German fiscal policy.

But then, the Covid-19 pandemic happened. The government took on emergency debt to try to stem the impact the pandemic had on its budget through a temporary debt brake suspension.

As it turned out, the extra funding wasn’t actually needed. And so, the current coalition government decided to re-allocate it to finance policies aimed at climate change and a greener, more sustainable economy.

Constitutional or not?

Germany’s opposition was not happy about the re-allocation and eventually took the matter to Germany’s constitutional court. Last week, the verdict came in and, in a blow to the government, the court confirmed that the emergency funding was not allowed to be used for policy plans unrelated to the pandemic.

The government appeared somewhat unprepared for this verdict and was left fumbling for answers when questioned by colleagues and the press.

Some observers (and several Green party members), have suggested that the climate crisis is as much of an emergency as the pandemic. But the court’s ruling stands, and Germany’s budget now has a 60-billion-euro ($65 billion) hole.

The government has since scrambled to figure out its financial plans, and earlier this week German media reported that the finance ministry had more or less shut down the possibility of any additional spending that hasn’t already been scheduled for 2023.

A divided coalition

A major factor in the government’s dilemma is the range of political positions the three coalition partners hold.

There’s the Greens, who were the key instigators behind the climate policy plans that are now at risk and are therefore heavily attached to its success. Then the SPD, the social democrats, who would be content with making the debt brake more lenient or increase taxes. And the FDP, the Free Democratic Party, who control the finance ministry and don’t want higher taxes or higher debt.

But a full break up of the government is unlikely, according to a research note published by Eurasia Group directors Jan Techau, Mujtaba Rahman and Jens Larsen.

“Government stability is not in question, and the coalition is still likely to complete its full term,” they said.

“All three parties would face devastating losses in the (unlikely) case of snap elections, diminishing their appetite for breaking out of the current arrangement. No obvious new majority is possible in the current parliament,” they said.

Any solutions?

Solutions are still few and far between, especially ones that can be applied in the immediate term, and the government is still working on plans to readjust spending and funding that coalition partners can agree on.

And in the long term?

“An obvious way out would be to change the constitution,” Berenberg Bank’s Chief Economist Holger Schmieding said in a note. This would require a new consensus with at least some of the opposition politicians needed to reach the required two-thirds majority, he explained, which would mean political deals and sacrifices on divisive topics such as asylum rules.

“For now, such a deal seems unlikely. But after the next election in September 2025, a (new) government that would once again need to include parts of the centre-right and centre-left may perhaps strike such a deal,” Schmieding said.

Reforming the debt brake after the next General Election is also one of the paths ahead that Citi economists Christian Schulz, Giada Giani and Benjamin Nabarro foresee. They also note that long-term changes to the way the German government is funded could be ahead.

“We expect the ruling to drive the government to build actual cash reserves in normal times as well as during emergencies, which would allow it to address long-term consequences of crises without breaching the debt break,” they wrote in a research note.

And finally, the bar for what constitutes an “emergency” (and therefore allows for a suspension of the debt brake) could be lowered — and eventually perhaps even include the climate crisis.

Source: CNBC

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Cohen

Commodity

Oil prices fell by more than 1% on Thursday, extending losses from the previous session, after OPEC+ postponed a ministerial meeting, leading to speculation that producers might cut output less than earlier anticipated.

Brent futures LCOc1 were down $1.02, or 1.2%, at $80.94 a barrel by 0625 GMT, after falling as much as 4% on Wednesday. U.S. West Texas Intermediate crude CLc1 dipped 87 cents, or 1.1%, to $76.23, after declining as much as 5% in the previous session.

Trade was expected to remain muted due to the Thanksgiving holiday in the United States.

In a surprise move, the Organization of the Petroleum Exporting Countries and allies including Russia delayed to Nov. 30 a ministerial meeting where they were expected to discuss oil output cuts.

Producers were struggling to agree on output levels and hence possible reductions ahead of the meeting originally set for Nov. 26, OPEC+ sources said.

Three OPEC+ sources, however, said this was linked to African countries, which are smaller producers in the group, which somewhat eased investor concerns.

Analysts said that Angola, Congo and Nigeria were seeking to raise their 2024 supply quotas above the provisional levels agreed at the OPEC+ June meeting.

"At that meeting, OPEC squared the books on increasing UAE’s quota... by reducing the targets for the African nations that were underperforming their required production numbers," said Helima Croft, an analyst at RBC Capital Markets, in a client note.

Angola and Congo have been producing below their 2024 production targets, whilst Nigeria has been able to increase output above target due to the improving security situation in the oil-rich Niger Delta.

"We think Nigeria can be assuaged as the leadership values its longstanding OPEC membership and improving ties with Saudi Arabia... However, it may be more difficult to bridge the gap with Angola which has been a moodier member of the producer group since it joined in 2007," said RBC's Croft.

"Disagreement between members will likely increase volatility within the market over the course of the next week," analysts at ING Bank said in a note.

The questions over OPEC+ supply come as data showed U.S. crude stocks jumped by 8.7 million barrels last week, which was much more than the 1.16 million build that analysts had expected.

U.S. oil rigs remained unchanged at 500 in the week to Nov. 22, energy services firm Baker Hughes BKR.O said in its closely followed report on Wednesday.

Meanwhile, about 3% of crude oil production in the Gulf of Mexico, or around 61,165 barrels of daily output, was shut in by an underwater pipeline leak, the U.S. Coast Guard said on Wednesday.