Missing the positive global atmosphere again
Following the U.S. Central Bank’s (Fed) postponement of rate hikes, the European Central Bank decided to continue its monetary expansion, creating a beneficial environment for developing countries such as Turkey. The expectation of the abundance of global liquidity has particularly revived bond investments in countries such as Turkey.
The main reason there was not too much of a disruption in the markets despite the recent terror disaster in Ankara was this positive global atmosphere. Because hot money has started flowing again, the positive course in the securities and bond market was maintained.
The markets, on one hand, want to make use of this atmosphere but on the other hand they are aware that this climate is temporary. For this reason, as long as there is an opportunity for profits, they want to make the best use of it.
It is certain that this atmosphere is temporary. No changes in rates are expected in the Fed’s decision scheduled for March 16. On the other hand, the expectation concerning the meeting in June is predominantly a new rate hike. Markets predict the Fed will increase rates 0.50 points in total this year, and this will be done in June and September.
This shows that the positive atmosphere nurtured by the Fed, which is the real dynamo of the abundance of global liquidity, will only continue for a couple of months.
Also, the European Central Bank’s last rate and bond purchase decision was more positive than expected in the markets. For this reason, and also due to negative rates and the abundance of cash in Europe, there was a capital inflow to countries like Turkey. However, it is immediately being said that this will not continue for long. We see comments are increasing that these decisions will not be enough to revive the economy and their effects will be short-lived.
Liquidity because of low rates flowing into countries like Turkey is a temporary situation. It will not be a surprise when in the second half of the year, at the latest, liquidity returns to developed countries.
Paying the price
This instability in the global climate has again brought a positive atmosphere but one cannot say Turkey is making adequate use of this. We can say that it only prevented a disruption of the markets in this clashing period.
On the other hand, the growing domestic and international political risks unique to Turkey and the further disruption of peace are causing a worsening of expectations concerning the future. In other words, it looks as if the latest terror incidents have not affected the markets for now, but they are causing a build-up for movements to be experienced later. It should not be forgotten that the possibility is huge that all these risks will take their toll at the same time with the disruption in the global climate. It should not be forgotten that when business in global liquidity turns against us, this time these negativities will be paid for and because of risks unique to Turkey, the negativity may cause exaggerated movements in domestic markets.
In Turkey, domestic and foreign policy and the economy have not been well managed for a long time. We are just starting to pay for the price for bad management. I think one should view the escalation of terror incidents from this point of view.