Turkish Growth Surges Higher

Daily Analysis - 12/12/2017

Economy Notches Single Best Expansionary in Six Years

Even with the precarious political backdrop alongside an ongoing political dispute with the United States, the Turkish economy managed to record its fastest pace of growth thanks to a slew of tailwinds. Thanks to a cheap Lira, exports showed tremendous gains while household spending also drove the accelerated activity, raising the specter of policy tightening.

Turkish Economy Experiences a Resurgence

Since the notable weakness during the third quarter of 2016 when Turkey experienced a coup attempt which catalyzed an economic contraction, the economy has made significant strides. The latest quarterly gross domestic products for the three months ended in September highlighted the progress, with growth reaching 11.10% on an annualized basis. While partly attributable to the passing of the prior year’s contraction, it also reflects the impact of the cheaper Lira and elevated inflation. Household spending was a big contributor, rising by 11.70% during the period while being accompanied by higher fixed-asset investment, rising government expenditures, and more competitive exports. However, with inflation at 12.98%, there is a strong possibility that the Central Bank will opt to raise rates from their current 8.00% to help tackle rapid price growth. After trading mostly unchanged on Monday, USDTRY is edging below 3.8350, prolonging a near two-week pullback.

US Job Openings Reach Five Month Low

With the latest two-day FOMC meeting set to begin later in the day, the Federal Reserve has another feather in its cap as its discusses the merits of raising rates for a third time this year. Apart from Friday’s payroll figure which remained above 200,000, data published by the Bureau of Labor Statistics on Monday highlighted hiring strength. According to the JOLTs data, the number of job openings retreated from a record high of 6.177 million in September to 5.996 in October, marking the lowest reading since May. The bigger picture for the labour economy is one consistent with a healthy jobs market, giving the Federal Reserve support needed to continue its monetary policy normalization efforts. Modest strength in the US dollar saw precious metals extend a recent downtrend, with silver prices correcting higher to $15.773 after falling as low as $15.695 on Monday.

Norwegian Inflation Continues to Sink

Despite the improving environment for oil and gas prices, the Norwegian economy is still struggling to reverse falling price growth that began after consumer price inflation experienced a multi-year peak in summer of 2016. Since topping out at 4.40% in July of last year, inflation is now ebbing near 1.10%, highlighting the challenges facing the Norges Bank as it seeks to reach its 2.50% target. At present, the Central Bank does not anticipate reaching the target in 2018, suggesting that no monetary tightening is going to be imminent as cooling inflation stymies rate hike prospects. Even if the ECB decides to eventually life rates in 2018 or reduce easing, Norway is likely to lag any tightening efforts conducted in the Euro Area. The Krone was one of the worst performing major currencies on Monday, with EURNOK rising as much as 1.40% on the session before pulling back to near 9.8500.

Russia Begins Syria Troops Withdrawals

In an unexpected decision, Russian President Vladimir Putin announced on Monday that the number of Russian forces operating in Syria would be gradually drawn down following the sweeping victory against ISIS. Speaking from Khmeimim airbase during an impromptu visit to Syria, Putin declared the mission an overwhelming success after managing to restore authority to territories that were formerly overrun by the Islamic State. However, he did warn that any resurgent attempt by the group would be met with a forceful retaliation. All told, the statement accompanied by a planned visit to meet Egypt’s President Abdel Fattah Al-Sisi underscores Russia’s growing influence as a Middle East power broker. As Putin plans his next Presidential run, his military triumph alongside a gradually improving domestic economy has positioned him for another electoral victory. The USDRUB pair is sustaining the prior session’s decline, falling to 58.8230 in early European trade.