International investors

A bright spot

The ECB's September Meeting: Hawkish Tilt or Dovish Pause?

Unraveling FX Reserves: A Call for External Debt Strategy and Monetary Policy Normalization

ING Economics ING Economics 15.06.2023 08:20
FX and External   Debt strategy Under the existing CBT policy with indirect FX interventions and regulations to control locals' FX demand, gross FX reserves have been under pressure since the beginning of this year. Gold reserves have also been on the decline lately, as the CBT directly matches gold demand given import restrictions introduced in February. Total reserves are around the US$100bn threshold, though, excluding swaps with banks and other CBs, the CBT’s net reserve position is -US$61bn, an all-time low. Given this backdrop, there is a consensus that points to a normalisation in the conduct of the monetary policy with the narrowing corridor for muddling through.   In this regard, the signals for a shift towards more conventional monetary policy have supported the sentiment in the days following the elections and any policy action after the new economy post appointments will be watched closely. Valuations for Turkey’s Eurobonds have gone almost full circle over the past year, with a sharp sell-off after the first-round election results followed by a more recent recovery. Spread levels relative to single-B peers and the pickup over higherrated BB sovereigns are now at the tight end of their range for the past year.   In the near-term, concrete steps towards a shift to more orthodox economic policy is likely to be taken positively by the market on the back of recent market-friendly rhetoric, and technical factors should remain supportive given a persistent local bid for short-dated paper and light positioning from international investors. However, we remain cautious on the medium-term prospects for a durable return to orthodox policy and have concerns over the recent drain in FX reserves and spillover effects from currency pressures that will be difficult to solve.   FX – spot vs forward and INGF   CBT funding
A Bright Spot Amidst Economic Challenges

A Bright Spot Amidst Economic Challenges

Ipek Ozkardeskaya Ipek Ozkardeskaya 25.09.2023 11:05
A bright spot If there is one bright spot in Britain with all this, it is the FTSE100. First, the rising energy prices are good for the energy-rich FTSE100. Second, softer sterling makes these companies more affordable for international investors, who should of course think of hedging their sterling exposure, and third, more than 80% of the FTSE100 companies' revenues come from oversees, which means that when they convert their shiny dollar revenues back to a morose sterling, well, they can't really complain with a stronger dollar. Consequently, if a more dovish BoE is bad for sterling, the combination of a hawkish Fed and a dovish BoE and a pitiless OPEC is certainly good for the FTSE100. The index has been left behind the S&P500 this year, as the tech rally is what propelled the American index to the skies, but that technology wind is now turning direction. The FTSE 100 broke its February to September downtrending trend to the upside and is fundamentally and technically poised to gain further positive traction, whereas, the S&P500 is heaving a rough month, with technology stocks set for their worse performance this year, under the pressure of rising US yields, which make their valuations look even more expensive.   Interestingly, the US 2-year yield peaked at 5.20% after the Fed's hawkish pause this week and is back headed toward the 5% mark, but the gap between the US 2-year yield and the top range of the Fed funds rate is around 40bp, which is a big gap, and even if the Fed decided not to hike rates, this gap should narrow, in theory. If it does not, it means that bond traders are betting against the Fed's hawkishness and think that the melting savings, the loosening jobs market, tightening bank lending conditions and strikes, and restart of student loan repayments and a potential government shutdown could prevent that last rate hike to happen before this year ends. And indeed, activity on Fed funds futures gives more than 70% chance for a third pause at the FOMC's November meeting, and Goldman Sachs now sees the US expansion slow to 1.3% from 3.1% printed in the Q3. KPMG also warned that a prolonged auto stoppage may precipitate contraction. And if no deal is inked by noon today, the strikes will get worse.   One's bad fortune is another's good fortune  The Japanese auto exports surged big this year, they were 50% higher in yen terms. The yen is certrainly not doing well, but yes, you can't have it all. That cheap yen is one of the reasons why the Japanese export so well outside their country. And in case you missed, the BoJ did nothing today to exit their hyper-ultra-loose monetary policy. They didn't even give a hint of normalization, meaning that the yen will hardly strengthen from the actual levels. In the meantime, Toyota, Mitsubishi and Honda shares are having a stellar year, and the US strikes will only help them do better. 

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