Life after Osaka
Amidst a startling controversy about who said what during the Erdogan-Trump meeting, we change our baseline scenario on S-400s. Erdogan shall take delivery and the sanctions will go into effect latest by August, but they will be mild. Read on, this is not the end-game, which is at least 3-6 months away.
Ali Babacan (to be followed by Ahmet Davutoglu later on) is certain to launch a party rival to AKP, which can garner 10% of the AKP vote and possibly more if Erdogan fails to improve the economy.
Rookie Istanbul mayor Ekrem Imamoglu remains hugely popular, but he is facing daunting obstacles on his way to challenge Erdogan in the next presidential contest, if that is his true objective. Obstructions by Erdogan and AKP-MHP controlled City Assembly are not his biggest problems.
The good news on the reform front is that there will be some. The bad news is that none is visible in economic policy.
Economic Confidence Index recovered in June, but it is still hovering around rather depressed levels, while May trade data was a mixed bag, with exports registering relatively solid growth, but imports still contracting quite sharply. The 12-month trade deficit continued to shrink visibly as a result, in line with the preliminary data released earlier.
As fiscal position continues to deteriorate, Ankara, it looks like, is set to usurp cash sitting at the CBRT balance sheet reserved for rainy days – an attempt we first heard about in May, but had been postponed then.
The key data release of the week is June inflation (along with June manufacturing PMI). One poll we saw(in Turkish) placed the median for CPI inflation at 0% (mean at 0.2%), with a lot of variation in between (ranging from 0.7% to -0.2%). We see CPI-inflation coming in at around 0.2% (June 2018: 2.6%), thanks to a very sharp drop in food inflation, which, if true, should take the 12-month rate markedly lower to some 16% from 18.7% in May.
Cosmo anticipates a sentiment-driven rally in TL assets through July, and if the Fed cuts rates, through August. But if you are waiting for a new Turkey story, move on, it is not in the making until the IMF arrives in Ankara.
Now read on...
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