Turkey is a major player in global economics and trade. The country is listed by the International Monetary Fund (IMF) as the world’s 20th largest economy. Turkey also plays an important role as both a transit hub and trading partner to many countries in Europe, Asia, and Africa. Additionally, it is an important supplier of energy resources such as oil and gas. Its strategic location also gives it significant geopolitical influence in the region.
In 2013, Turkey’s nominal GDP peaked at $957.5 billion, ranking 16th in the world, while its nominal GDP per capita peaked at $12,489, ranking 64th in the world. By 2022, the GDP per capita peaked at $38,759 in 2022, ranking 46th. However, the declining value of the Turkish lira – especially throughout the period of the 2018 to 2022 Turkish currency and debt crisis – had a significant detrimental impact on the country’s US dollar-based nominal GDP figures. High inflation continues to be a problem. According to the IMF’s estimates, published in the IMF World Economic Outlook Database of October 2022, Turkey is forecasted to have the world’s 20th-largest nominal GDP and 11th-largest GDP by purchasing power parity (PPP) by the end of 2022.
Earlier this week, this prominent emerging market economy was rocked by the largest earthquake in a century – measuring 7.8 on the Richter scale – just hours before a major earthquake rocked its neighbour, Syria. With Turkey’s election taking place in May, the earthquake comes at a critical inflection point for President Recep Erdoğan. This disaster is going to see him judged against not only the recovery measures taken following this disaster, but also construction standards in the country following the collapse of 6,000 structures, many of which were rated as “earth-quake proof”.
In addition, the electorate will be looking at Turkey’s economic predicament. While this has been exacerbated by a combination of high global energy prices, the COVID-19 pandemic, and the war in Ukraine, it has largely been caused by the controversial and unconventional economic policies of President Erdoğan, that have suppressed interest rates (despite rocketing inflation), causing the Turkish lira to tumble to record lows against the dollar.
The cost of the damage caused by Monday’s earthquake, which excludes the longer term economic and political costs, is estimated to be around $4 billion, according to ratings agency, Fitch. This is another blow to the already beleaguered economy.
DATA IN A NUTSHELL
It has been a slow week on the data front, with a relative dearth of major economic data releases.
Retail Sales in the euro area decreased by 2.8% year-on-year in December of 2022, marking a third consecutive drop, and coming in marginally worse than market forecasts of a 2.7% decline.
The number of Americans filing for unemployment benefits rose to 196,000 in the week ending 4 February, from the previous week’s nine-month low of 183,000 and above market expectations of 190,000. Still, the latest figure suggests the labour market remains tight, which could generate further inflationary pressure in the world’s largest economy.
EARNINGS REMAIN MARKET’S FOCUS
The Dow Jones rallied more than 200 points on Thursday, while the S&P 500 and the Nasdaq 100 were up 0.9% and 1.3% respectively, as investors digested a barrage of earnings reports and the latest jobless claims data. Some notable results included Walt Disney, which soared more than 4% after topping earnings estimates and announcing a restructuring plan that includes job cuts and cost savings, and beverage maker PepsiCo, which added roughly 3% after reporting quarterly results that surprised to the upside.
London-based equities advanced for a third consecutive session on Thursday, with the benchmark FTSE 100 climbing above the 7,900 level, helped by healthcare and consumer discretionary stocks. Without any recent significant catalyst, risk appetite continued to be lifted by optimism over major central banks nearing the end of their interest rate hiking cycle and China’s reopening. On the data front, Britain’s housing market suffered the sharpest price falls since 2009 in January as higher interest rates weighed on prospective buyers. On the individual stock front, Compass Group rallied more than 2% to lead the FTSE 100 after the British caterer said its organic revenue rose 24% in the first quarter. Multinational pharmaceutical manufacturer AstraZeneca was amongst the biggest gainers after posting fourth-quarter revenue aligned with expectations.
European shares rebounded on Thursday, with the pan-European STOXX 600 climbing to a fresh nine-month high and Germany’s DAX 40 rising above the 15,600 mark for the first time since February 2022. Investors welcomed data that indicated that while the German inflation rate crept higher to 8.7% in January, it remained below market expectations of 8.9%, which could ease pressure on the European Central Bank (ECB) to keep raising rates. Markets have also shrugged off hawkish remarks from US Fed officials who reaffirmed their commitment to fighting inflation with more rate hikes. On the corporate front, while Credit Agricole posted a higher-than-expected profit, driven by lower loan provisions and a strong performance in its investment banking division, it reported its worst annual loss since 2008 and warned that a further “substantial” loss would come this year.
Japan’s Nikkei 225 Index shed 0.08% while the broader TOPIX Index inched up 0.05% in mixed trade on Thursday, following a weak session on Wall Street overnight, as a chorus of US Fed officials reiterated their commitment to bringing down inflation with more rate hikes. Investors also prepared for a raft of corporate earnings from major Japanese firms including Toyota Motor Corporation, Tokyo Electron, Nexon, Nippon Steel and Impex Corp. Technology stocks mostly declined on Thursday including Tokyo Electron, Mercari and Advantest.
GROWTH OUTLOOK SUGGESTS REDUCED DEMAND FOR OIL
West Texas Intermediate Crude futures dropped more than 1% to around $77/barrel on Thursday, ending a three-day rally as rising US inventories offered a bleak picture for domestic demand. The Energy Information Administration said crude oil stocks rose last week to their highest level since June 2021, helped by higher production and somewhat sluggish consumption. Still, despite this pullback, prices remained supported by optimism about a recovery in global demand. Saudi Arabia, the world’s top exporter, raised crude prices for Asian markets for the first time in six months in the latest signal that demand could be poised to rebound on the likelihood of higher imports from China. On the supply side, suspended operations at a crucial oil terminal in Turkey due to the recent earthquake and the unexpected shutdown of a major oil field in Norway continued to lend optimism to bulls.
Gold climbed to $1,880/ounce, rebounding further from its recent one-month low, as Fed Chair Jerome Powell’s latest remarks sounded less hawkish than anticipated. He reiterated that the US is at the beginning of disinflationary processes but cautioned that additional rate hikes might be needed and the terminal rate could peak higher if the labour market remains strong.
Copper futures bounced back above $4.10/pound, from a four-week low of $4.00/pound hit on 6 February, on the back of a subdued dollar, anticipation of recovering demand in China, and a further decline in supply. The demand in China is set to recover later this month as workers return from their Lunar New Year holiday break. Meanwhile, copper inventories in Shanghai Futures Exchange warehouses jumped by 61.8% to 226,509 tonnes between 20 January to 3 February, more than usual for this time of the year. On the supply side, the Las Bambas mine in Peru officially halted production on 1 February.
DOLLAR HOLDS AT NINE-MONTH LOWS
The dollar index stabilised above 103 during early trade on Friday, as investors turn their attention to US inflation data next week. They are looking for clues about the trajectory of the Fed’s future interest rate hikes. Investors also continue to digest the hawkish signals from Fed officials this week who reiterated the need for higher rates for longer. At the same time, investors continue to be wary about increasing risks of a US recession. Powell said earlier this week that the disinflationary process has started, but warned of more rate hikes, should the jobs market remain strong. Investors are now looking ahead to more Fed commentary and US consumer sentiment data out today.
The euro held above $1.07 in mid-February, not far from a near nine-month high of $1.1034 touched last week, supported by the ECB’s hawkish stance. ECB governing council member Joachim Nagel joined a chorus of policymakers calling for even more tightening in the spring to bring inflation back to the 2% target, while ECB board member Isabel Schnabel also said that the rate hikes delivered by the ECB, so far, were having little impact on inflation. The ECB raised interest rates by 50 basis points at its February meeting to the highest levels since late 2008 and hinted at one more increase of the same magnitude next month, as it reaffirmed its commitment to tackle high inflation.
The British pound remained under pressure to trade below $1.21 after touching $1.1958 on Tuesday, its weakest level since 6 January, as the Bank of England came across more dovish relative to the ECB and the US Fed. In addition, investors are waiting for further comments from United Kingdom policymakers and Britain’s fourth-quarter GDP data which might provide further clues about the central bank’s next moves.
The pound started the day trading at 1.2125/$ and 1.1285/€.
Written by Citadel Global Director, Bianca Botes
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