Page 18 - Turkey Outlook 2023

comfortable for the Biden administration.

In the 435-seat House of Representatives, the Republicans secured a
majority with 222 seats. The Democrats are on 213 seats.

Leading up to the mid-term polls, the expectations were that the US
was starting to face the prospect of having a more powerful populist
president (not Trump, but a Trump Mark II) in 2024.

However, in the theatre of representative democracy, the polarised
masses were given the choice of two rotten options. Those wanting to
keep the populist Republicans out (and it turned out that more of these
voters were prepared to make the effort to vote than was expected)
would have voted for a paper bag if it served the purpose.

As things stand, it is not possible to be certain what the outcome of the
November 2024 presidential election will be.

In any case, amid multiple interlocking crises, social tensions and wars
across much of the globe are ahead.

The Fed is, meanwhile, in a position to reverse its tightening cycle at
some point in 2023 to produce a more comfortable economy before the
presidential elections.

European Central Bank (ECB)

The European Central Bank (ECB) was late to respond to booming
inflation as it awaited the end of elections in France.

Since July, the authority has taken its deposit facility rate from minus
0.50% to 2%. More rate hikes will definitely be delivered in the first half
of 2023.

As the ECB was late, the EUR/USD saw the 0.95s in September. In
December, the pair hovered around 1.05.

The EUR recovery is mainly due to strong messages from ECB officials
on upcoming rate hikes. Recent USD weakness is also supporting the
EUR recovery.

The spread between the Italy 10-year and Germany 10-year papers
remains above the 200bp-level. The ECB is in a position to avoid
another crisis with the usual suspects.

Inflation in the Euro Area ended a 12-month long record-breaking
series in November as it was released at 10.1%, down from a record
high of 10.7% y/y in October.

Producer price inflation, meanwhile, declined from 42% in September to
31% in October. (Record: 43.4% y/y in August.)

Commodities

The FAO food price index declined for the eighth consecutive month

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