CBT Unlikely to Change Rates
Small scale clashes lasted throughout the night across Turkey. A sympathy strike by left-leaning unions and professional associations drew in crowds, but excitement was notably lacking. These are critical days, if the protests wind down under their own weight, fine. The markets are likely to forget and forgive. But, what if they flare up over the weekend? What really bothers me is that AKP doesn't seem to have an exit strategy except more police force and a broader crack down on supporters. The chances of success are at best 50%.Yet, suppressing demonstrations would not gain AKP additional votes. Failure to do so would antagonize its center-right voters and may draw a very sharp reaction from the global press.G-8 discussing Syria, an agreement is not likely. If Obama goes beyond sending weapons, the Shia Axis may retaliate against Turkey. Kurds demand reforms now, adding another dimension to AKP’s difficulties.CBT will not change rates today, according to consensus, but is it ready for a long period of risk reversal? Will it resort to higher rates or more F/X sales if pressures on the currency continue? The sell-offs may subside, but MSCI GEM started the day weak again. No momentum in TL denominated assets.