Breakfast Bites - Turkey Central Bank hikes rate to 40%

Rise and shine everyone.

Happy Thanksgiving to all those in the US. A shorter note today on account of the holiday but, plenty to cover.

US Markets are closed for the holiday. But, the market was quite volatile yesterday as trading volumes were thin and news releases made an outsized impact. Final, inflation expectations came out from the University of Michigan survey - coming in at 4.5% for 1-year ahead and 3.2% for the next 5-10 years. Inflation getting entrenched in the minds of consumers is dangerous because it can mean people buy now in fears of rising prices and actually make those fears come true, i.e., the increase in demand pushes prices higher.

But add to that we also saw jobless claims and continuing claims come in lower than expected. One reading doesn’t make a trend, but a tightening labor market is not what the Fed likely wants to see either. Apparently, traders are removing their hedge for dovish bets on this news.

I do think it’s a little blown out of proportion and we still have two more inflation reports (PCE end of Nov and CPI on 12 Dec right before the Fed meeting) and we have the unemployment report for November. These should provide more clarity on whether the Fed will announce a pause.

And finally, we got a surprise announcement from the OPEC that their meeting to be held this weekend is postponed to Nov 30. That sent the oil market tumbling.

Asia and Australia

• Asia equities finished mixed Thursday amid a notable decrease in volumes. Greater China markets volatile as Hong Kong rallied in afternoon trade and mainland stocks supported through the day as more support came for property stocks. Australia ended lower with mining stocks under pressure. Seoul and Taipei flat, India also directionless; Southeast Asia a little more volatile as Indonesia surged but Thailand sold off. Japan closed for a holiday.

• Rate cut bets in China are being ruled out for the rest of the year. Survey shows 1-year MLF to be held at 4.5% until Q1; 1-year LPR at 3.45% until Q2; and 5Y LPR at 4.2% until next year. This shouldn’t come as a surprise as the PBoC has been doing everything in their power to defend the Yuan. Cutting rates could weaken the currency. Furthermore, cutting rates also mean net interest margins for banks will come under pressure, at a time when they are already contending with potential property defaults.

• Chinese regulators are considering allowing banks to issue “unsecured” working capital loans to qualified developers for the first time for day-to-day operations.

• Bank Indonesia held base 7D reverse repo rate steady at 6.0% as widely, but not universally, expected as it continues to grapple with slowing economic growth, fragile rupiah. The Central Bank surprised the market with a 25bps hike last month to support the currency.

Europe, Middle East, Africa

• European equity markets firmer after finishing mostly higher Wednesday. Oil/gas, basic resources and financial services the best performers, while telecom and travel/leisure lag.

• Risksbank surprised with hold in rates. Markets were certain of 25bps hike. They’ve held rates steady at 4%.

• Turkey surprised with a larger than expected hike - increasing rates by 5% instead of 2.5%. The bank rate now is 40%. According to my colleague who’s an economist at one of the biggest banks here:

  “the CBRT is acknowledging for the first time that domestic demand has started to moderate and that there is improvement in pricing behavior.

  The most dovish statement which is new is that the CBRT now acknowledges that the Monetary tightness is close to the level required to set in the disinflation course.”

• Norway’s final GDP number for the third quarter came in unchanged at -0.5%. Expectations were for a revision upwards to 0.3%. The GDP growth took a hit because of a reduction in petroleum activity, that fell -2.5% for a second month in a row, and fixed investments that fell -2.1%.

• Flash PMIs are out for Europe and all still in contractionary territory

  • Eurozone - both manufacturing and services PMIs improved

  • Germany - both manufacturing and services PMI came in higher

  • France - Manufacturing PMI declined, services PMI improved marginally

• UK PMIs improved. Manufacturing PMI improved but remains in contractionary territory. Services PMI has moved into expansionary territory to 50.5 from 49.5.

Chart of the Day: Commodities have been stuck in a range since May. When you look at it as a chart, you realize the world has not been in expansion for a while now. Fiscal spending doesn’t count!

Calendar

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)