The second week of the year started quite optimistically in global financial markets. China’s decision to reopen its borders, taking a step back from the zero covid application, as well as the signs that the economy is losing momentum in the USA increased the expectations that the FED will slow down the rate of interest rate hikes.
The US stock markets, which regressed sharply under the shadow of the tight monetary policy followed by the FED, which darkened its eyes in 2022 as part of the fight against inflation, ended its four-week series of declines after the data announced last week. As it will be remembered, the optimism that started in the last trading hours of Friday, with the slight decline in average hourly wages and the decline in the ISM services PMI data, which is one of the leading indicators of growth in the USA, in December, was carried into the new week.
The agenda is relatively weak; With the help of the limited data flow, while the world is ready to complete yesterday with an optimistic outlook, Atlanta Fed Chairman Bostic said in his statement that if the inflation data to be announced on Thursday supports the slowdown indicated by the latest employment data, a 25 basis point increase (the next interest rate meeting) is expected. At the beginning of February), San Francisco FED Chairman Daly, who was asked about his preference for an interest rate increase in an interview with the Wall Street Journal, said that both 25 and 50 basis point increases were on the agenda for him.
The optimism in the global financial markets was interrupted after the statements from the FED side. The Nasdaq, on which technology shares are traded, rebounded most of its gains, closing the night up 0.6%, while the Dow and S&P500 fell. With the cessation of the risk appetite in the last trading hours of the day, the ounce price of gold decreased, albeit limitedly, while the US bond yields increased, albeit slightly. As we highlighted both in our annual report and yesterday’s bulletin, the 1.0740 level, which we follow closely in the EURUSD parity, was tested yesterday during the time when the markets were optimistic.
On the Turkish front, we think that the rocket’s fuel is about to run out technically. Which rocket is it? We are talking about Borsa İstanbul. Borsa Istanbul, which is rising breathlessly with its own internal dynamics, namely domestic investors fleeing inflation, witnessed panic sales on Thursday and recovery on Friday, and continued its disconnected course from the world yesterday.
As we mentioned in our bulletin yesterday, the CBRT updated the securities establishment ratio again at the weekend, switching to a cascading system and bringing it from 5% to 10%. According to the Communiqué, banks with a TL deposit ratio of less than 50% in their balance sheet will purchase securities at the level of 17% of their foreign currency deposits (10% + 7%). After the notification to establish additional securities, we saw that the losses in bank shares accelerated yesterday. While the main index fell by 3.2%, the banking index (XBANK) closed the day with a decrease of 4.5%.
In the USDTRY exchange rate, we see that the upward pressure has started to increase from time to time despite the public support. This inevitably makes us feel that the demand for foreign currency is strong. According to the CBRT’s analytical balance sheet, which was announced on Thursday last week, while gross foreign exchange reserves decreased slightly, net reserves (net foreign exchange position) excluding swaps expanded from minus 53.1 billion dollars to minus 56.6 billion dollars. We think that the authority will try to curb the rise in the exchange rate in the period until the election, against the Turkish people who measure the course of the economy over the exchange rate level.
Brazilian soldiers, backed by police, on Monday dispersed a camp of supporters of the far-right ex-President Bolsonaro in the capital. We think that the insurgents’ worst attack on state institutions since the country’s return to democracy in the 1980s will delay the economic reforms of new president Lula. However, contrary to expectations, Brazilian stock market Bovespa did not complete the day with a decline yesterday. The view that the violence experienced can strengthen Lula politically comes to the fore. To note, pro-Trump supporters in the US also caused similar incidents in January 2021.
We read that Goldman Sachs, one of the leading institutions in the financial sector after Amazon, Sales Force and Twitter, will start laying off thousands of people across the company from Wednesday as it prepares for a challenging economic environment. As the FED continues to maintain its pro-interest stance, the problems in the labor market have started to grow more and more every day!
At the start of the new day, Asian markets are on the cautious side before the tightening statements from the FED and the US inflation data to be announced this week, and follow a indecisive course. Red is the dominant color in the futures of the US stock markets. On the agenda of financial markets, industrial production and unemployment rate can be followed today.