Sixty days of nail-biting suspense
Our coverage of early elections scene starts by answering FAQs, such as whether Gul will run, the Good Party will be allowed to contest the race, and the mechanics of large-scale fraud. We then move on to the polls, which reveal AKP-MHP clinging to a narrowing lead in the parliamentary elections. In case of the presidential race, in the absence of contradictory data and a CHP candidate, we bet on Erdogan reclaiming his title.
Thirdly, we discuss risks to our political base-case scenario of Erdogan and AKP-MHP winning the elections. The state of the economy and the difficulty of engineering an effective pork-barreling campaign without upsetting currency stability is the biggest risk to a pro-Erdogan camp victory.
Sanctions threats from the US are becoming more concrete, as a new clash with the EU replete with public slurs can’t be ruled out. Contrary to conventional wisdom, evidence of diplomatic spats gaining Erdogan votes is scant on the ground.
We still think a modest (25-50 bps) hike of the Late Liquidity Window rate a’la December 2017 is the most likely outcome at Wednesday’s MPC meeting, but in sharp contrast to the recently popularized view (that the CBRT could make a bolder and more hawkish move, now that early election call has been made), we think there is a solid chance instead, that the MPC may leave rates altogether unchanged.
Budget performance was more or less neutral in March, yet one of the worst on record in Q1 as a whole, while the secular decline in the unemployment rate that was underway since late 2016 seems to have levelled off in January, as job growth weakened visibly.
Cosmo does a post-mortem on the reasons for the recent rally, deciding that it is based mostly on hubristic assumptions. He also unveils His preliminary post-election(s) scenarios, only one of which is good for investors.
Now read on...
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