Weekly Tracker: October 11-17

TURKEY - Report 11 Oct 2015 by Murat Ucer and Atilla Yesilada

Ankara was rattled by the largest terror attack in the history of the Republic, which is certain to add to the polarization of the nation and increase the uncertainly of election results.

On the foreign policy front, Turkey and Russia are heading towards the biggest crisis since the Cold War, where Russia could well employ refugees and PKK to annoy Ankara. Meanwhile, KCK/PKK declared a unilateral cease-fire, which could open the way of the AKP-CHP coalition after the elections.

There is little new in the polls. AKP is still averaging 42%, which is at least 2% lower than it needs to score to guarantee a single-party government. Turkey's institutional decay is becoming more visible by the day, poisoning confidence in the state and destroying the business climate.

Industrial production again surprised on the upside, which is indeed puzzling, but strength can be attributed, in good part, to “cars and lags”, as we elaborate inside. The real exchange rate is at its lowest level since January 2003, at least by the most popular measure, but some caveats are in order. September cash budget showed the first signs of a fiscal deterioration that is now underway with cash revenues barely rising, in inflation-adjusted terms, but primary expenditures surging.

A key release of the week is August balance of payments data. In light of the trade data released earlier, prepare for a relatively sharp fall in the (12-month rolling) current account deficit to some $42.5 billion from $45 billion in July.

Cosmic Strategist goes on a limb to predict that Turkey’s “Great Positive Decoupling” within the emerging market asset class until the end of 1Q2016 has finally started.

Now read on...

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