Erdogan’s win boosts lira
By Vincent-Frédéric Mivelaz
President Tayyip Erdogan’s AK party won Turkey’s elections of Sunday, boosting the beleaguered lira, which fell 21% against the dollar since January. USD/TRY is now at 4.5942, below its 4.7456 high of 22 June and approaching 4.5839 in the short-term. TRY will strengthen medium term, but the rally is unsustainable, because Erdogan is likely to act unilaterally (in politics and economics) without consulting the opposition.
Among the five parties making the parliamentary threshold of winning 10% of votes, cooperation will not be easy. The constitutional reform of April 2017 reinforces the power of the president (abolishing the office of the Prime Minister, allowing direct appointment of top officials, allowing intervention in the legal system and state-of-emergency powers) and its allies in the Nationalist Movement Party in the parliament. Erdogan’s “People’s Alliance” is projected to win 342 seats out of 600 in the parliament, giving little power to the opposition.
US-China trade war builds
By Arnaud Masset
Pressure on Chinese securities should accelerate this week, as investors dump equities while tensions escalate between the USA and China. The Nikkei erased 0.79% and the CSI 300 fell 1.34%. In Europe, the Eurostoxx 600 dropped 0.67%, while the SMI fell 0.78%. In Forex, investors sheltered in safe havens: USD/JPY fell 0.40% to 109.53, while the Swiss franc gained 0.10%. The greenback is benefitting the most from tensions between the two largest economies. The People’s Bank of China lowered its reserves ratio to 15.50% from 16% on Sunday, in reaction to slowing growth and potential negatives from the trade dispute.
The Trump administration extended tariffs from just aluminium and steel to a broad range of Chinese products. The White House said its new measures are aimed at protecting industrially significant technology, preventing any company with at least 25% Chinese ownership to invest in US technology firms. In addition, the National Security Council and the US Department of Commerce are crafting a plan to prevent export of key technologies from the USA to China.