10.10 - lira is weakened once again
Another threat is coming to Turkey.
In the beginning of the month Brent and WTI have greased the highest point we have seen since the beginning of 2014. Tight now the crude is holding its positions near the $85 per barrel point. We talked about the prices being pushed by the coming sanctions of the United States against Iran. But the countries that export the cruse actually and quite obviously benefit from the expensive crude and make financial reserves for years to come in a situation like that. Saudi Arabia never hid the fact that they are striving for the crude to be as expensive as possible but definitely above $100 per barrel price point.
All of the factors have been pointing to and preparing us to the fact that sooner or later everything possible would be done for the crude to gain price as the biggest oil extractor is not going to up their output and prices for the crude were going to change. And the plan worked as after the statement the oil gained about 3 percent of the price.
There is also a possibility that soon Russia and Saudi Arabia will go on with the output increasing in order to keep the demand numbers for the asset stable and high.
And while high process for oil is good for the markets we are to look at the countries that still hold trading potential but are going to be hit the most when the prices for oil gain as much as they do now. With oil going for $100 per barrel point such countries like China, India, Thailand, Republic of South Africa and Chile are going to be the most vulnerable.
Said countries are going to have to adjust their yearly budget with the new prices for oil and they are tied to dollar’s behavior pretty hard. For consumers that is going to mean increase in the process for gasoline and utilities as all of the national currencies are going to become weaker against the greenback.
We as traders can also extract some information out of this. The economies of the above mentioned countries are at risk BECAUSE they are already pretty weak. China is under American pressure as it is. Chile has regional economic problems with a lot of people having no job. India and Thailand are in the oil trap. And we as traders only need to know one thing – when to get out of trading with the currencies of these countries.
Oil movements are vital information for us in this case. In case it does rich its goal of $100 the currencies are going to go tumbling down. and yes, although oil and stability if these economies have already co-existed back in 2014, the situation right now is much more strained. Y=trade war is taking its toll on everyone and there is no way to predict its next turn.
In the end it all comes to relations of oil and dollar. If these assets are going to be able to be together in one economic space, markets are going to be more stable.
With emerging market being on the calm note today we have forgotten about the fact that there is still a problem with Turkish currency. As the crises got isolated, it doesn’t mean that it got resolved. Lira along with Turkish economy is still pretty damaged as the government of the country is treading very carefully when it comes to fixing the situation. But here caution may be deadly.
Pressure on lira is forcing Turkish Central Bank to raise interest rate which results in the fastest pace for inflation rates since Erdogan has been in presidential seat. Although Turkey is advised to go full speed with economic recovery at the moment it seems that the situation can only escalate from here.
Right now we can witness more or less calm period of time for Turkish economy as the head of Turkish Ministry of International affairs stated that Turkey was not going to obey new restrictions and sanction of the United States against Iran. Turkey is only going to follow the ban if it is imposed by the United Nations.
With Trump saying that going around the restriction is not an option and will not be allowed for any country we can predict the new wave of conflict in the Turkish-American relation as well as the new tough period in Turkish economy. Can we expect a new package of American sanctions against Turkey? Of course. Sometimes it looks like it is the only way to communicate, available to the United States.
With lira struggling to shake off the damage done by the selloff the next hit might be fatal for the country that is already covered in financial troubles. Inflation is going to rise from here and GDP is nowhere near the usual growing pace with only 3.5 percent so far this year against 7.4 in the same period last year.
Turkey is also known for the slow responses to offenses from the outside. That is why it is possible that the answers and reactions as well as proper recovery pace are somewhere extremely near. We might be looking at couple more weeks of waiting and only after that some radical actions that can help lira grow.
In case there is nothing for Turkey to answer or no more recovery actions left, we would see one of the biggest local financial crisis in recent history with Turkey being important strategic partner of Russia and countries in the Middle East.
- by Anna K.