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Turkish Lira Has Collapsed 10% To Record Low Since Fed Taper; External Funding Needs Remain High

Tyler Durden's picture




 

While all eyes are transfixed on US equities - do we buy the dip now... or now? The rest of the world has been a little less exuberant. From China's 6 month lows to Argentina currency collapse, it's not been pretty but Erdogan and his ongoing totalitarianisation of Turkey has seen capital flight accelerate and plunge the Lira by 10% since the Fed announced its Taper in mid-December. The Turkish Lira has tumbled 27% in the last year - Abe and Kuroda would be proud - but for Turkey this is bad 'capital flight' news.

  • *TURKISH LIRA WEAKENS TO RECORD AGAINST DOLLAR AT 2.2242

Will the trend continue? It's unclear as little looks to stabilize the political situation but BofAML's Macneil Curry has just cut his long (having reached profit target) and that may slow the momentum. External funding requirements remain extremely high for Turkey and as MS notes, the political outlook looks hazy.

 

 

BofAML's Macneil Curry adds:

Closing our long $/TRY position

We are closing out our long $/TRY position, as the pair has reached our upside objective of 2.2161. On Dec-19, we recommended going long $/TRY at 2.0715, targeting 2.2161.

The original trade - posted Dec 19th...

This target has been hit; we therefore close out this position.

 

External funding requirements remain high

 

But as Morgan Stanley notes, The Political Outlook is Hazy (at best)...

Growth is likely to slow down on political concerns, deteriorating consumer and business sentiment and weak investment spending. We expect the CBT to tighten policy further to address the credibility gap, volatility in the currency and risks against financial stability. The political agenda will be busy throughout the year, with local elections in late March carrying high significance as a first true test of popularity for the government since the Gezi Park demonstrations and the graft probe.

 

Inflation is likely to stay in the 7-8%Y range for most of the year, with significant upside risks from currency weakness and the delayed utility price adjustments. We expect the 5%Y target to be missed by a wide margin in 2014 as well. Budgetary targets might be missed slightly, but the fiscal performance should remain robust and the debt/GDP ratio should decline further to around 34% of GDP.

 

The current account deficit will likely decline gradually from 6.7% of GDP and stay around 6%. Given the high external financing requirement, the currency will remain under pressure and the CBT’s reaction will be key in setting the course, in our view. At any rate, we expect a challenging year for funding the external gap. We do not expect any rating downgrade, but recent political events have raised the credit risk noticeably.

Of course, today's actions won;t help with any stability...

  • Turkey Removes Bank Regulator Deputy Chief, Anatolia Says
  • *IRAQ CONSIDERS CANCELING ALL TURKISH CONTRACTS: OIL MINISTER
  • ALL DEPARTMENT CHIEFS AT TELECOMS BOARD TIB REMOVED: HURRIYET

But apart from that, it's all going great following the Fed taper...

 

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Fri, 01/17/2014 - 12:45 | 4341284 LawsofPhysics
LawsofPhysics's picture

"External funding needs are high" -  Oddly enough, we happen to have all these freshly printed dollars, now let's discuss the terms of this swap/loan....

Fri, 01/17/2014 - 12:58 | 4341327 max2205
max2205's picture

So the turkish market should be at all time highs. .....?

Fri, 01/17/2014 - 13:01 | 4341343 doomandbloom
doomandbloom's picture

have you recently BTFD?

Fri, 01/17/2014 - 13:04 | 4341348 Buckaroo Banzai
Buckaroo Banzai's picture

Why did the Turkish Lira get the works? That's nobody's business but the Turks!

Fri, 01/17/2014 - 18:28 | 4342349 ThirdWorldDude
ThirdWorldDude's picture

Oh sir, but it is - there's an ongoing humongous corruption scandal being revealed in Turkey, reaching all the way up to Top Gov. Erdogan's already "resigned" 5-6 ministers, but the people want Recep Tayyip's head. Protests are rising up anew and there were also some rumors that a large Turkish bank was about to implode. Not to mention they are hosts to Al-Queaeda training & logistic camps and are totally complicit with their existence.

Besides that, I don't see any reason why investors might be worried about Turkey's political and financial future...

Tue, 01/21/2014 - 07:37 | 4351036 shawnmike
shawnmike's picture

You need leather coats

Fri, 01/17/2014 - 19:58 | 4342680 newdoobie
newdoobie's picture

I lived in Izmir back in late 80's my rent went from US $350 to $89 per month in three years. You can wipe your ass with the T. Lira. Nobody saves TL or USD, its all gold baby! As soon as they have enough another bangle goes on the arm.

Fri, 01/17/2014 - 12:52 | 4341303 Dr. Engali
Dr. Engali's picture

Damn if only we had a world currency to take care of this darn volatility so that corporations can exploit.......er.... I mean plan better. 

Fri, 01/17/2014 - 13:47 | 4341502 Anusocracy
Anusocracy's picture

Corporations can't exploit shit without government.

Fri, 01/17/2014 - 14:18 | 4341595 Dr. Engali
Dr. Engali's picture

Corporations are the government. You don't actually believe you have people who represent you do you? Oh yeah I forgot, corporations are people too.

Fri, 01/17/2014 - 14:40 | 4341647 PTR
PTR's picture

Damn if only we had a world currency to take care of this darn volatility so that corporations can exploit.......er.... I mean plan better. 

Be patient.  Crypto currencies take time to implement.

Fri, 01/17/2014 - 12:55 | 4341310 Hongcha
Hongcha's picture

Gold to $2000+ this year.  All around the world govts. will be forced to print to hold down the masses. 

Currency debasement is like McDonalds, it's fun, filling and kinda tastes allright going down ... never mind the agita afterwards, your dear leaders will be long gone while you fight in the streets for scraps of dogmeat.

Fri, 01/17/2014 - 13:00 | 4341335 GFORCE
GFORCE's picture

I think you meant $1000...

Fri, 01/17/2014 - 12:59 | 4341332 GFORCE
GFORCE's picture

The trend is your friend!!

Fri, 01/17/2014 - 13:11 | 4341379 youngman
youngman's picture

I think the IRAN deal will hurt Turkey..because they used Turkey to get around the sanctions...now they dont have too.....so that under the table business is gone I would guess...

Fri, 01/17/2014 - 13:57 | 4341533 disabledvet
disabledvet's picture

the cost of keeping those F-15 production lines open only increases. The mistake was the attack on Cyprus. (no, you didn't read about it.) can't say I know this for a fact but I bet there is a very large build up of forces going on right now in Libya.

Fri, 01/17/2014 - 16:46 | 4342075 A. Magnus
A. Magnus's picture

Attack on Cyprus? I highly doubt it. Putin's already using Cyprus as an auxiliary naval base, and if he feels threatened he has no problem rolling nukes in and vaporizing a fleet or two. Sorry, but that dog won't hunt...

Fri, 01/17/2014 - 14:28 | 4341643 PTR
PTR's picture

It starts at the periphery and moves towards the center...

 

Fri, 01/17/2014 - 16:54 | 4342098 flyingpigg
flyingpigg's picture

No wonder the Turks have been buying so much gold. Fiat Lira vaporizing quickly...

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