Page 7 - TURKRptDec22

It is obvious that a few basis points better-than-expected in the inflation readings do not mean anything when it comes to shelving the inflation problem. However, volatility is a must in financial markets. So, the price charts are now ready (following the recovery after November 10) for a sharp drop prior to the beginning of the new year rally.
The yield on 10-year US Treasury papers fell into the 3.60%s on November 16 while the USD index (DXY) declined to 105s.
30-year mortgage rates in the US fell below the 7%-level.
The US yield curve, meanwhile, remains inverted. The US switched to
positive GDP growth of 2.6% y/y in Q3. European Central Bank
On September 8, the European Central Bank (ECB) delivered a 75bp rate hike. On October 27, the ECB delivered another 75bp rate hike.
On December 15, at its next rate-setting meeting, the ECB is expected to deliver another rate hike.
The EUR/USD has been testing 1.05 since November 15. The EUR recovery is mainly due to recent 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 fell below the 200bp-level on November 11, a day after the US inflation release.
Inflation in the Euro Area extended its record-breaking series to a 12th consecutive month with 10.7% y/y in October. Producer price inflation declined from a record 43% y/y in August to 42% in September.
Federal Reserve
On September 21, the Fed’s open market committee hiked its policy rate by 75bp to 3.00-3.25%.
Updated projections of the US state central bank governors were also released. The governors now expect the policy rate to reach 4.25-4.50% in 2022, versus the expectation of 3.25-3.50% they gave in July.
The Fed had two scheduled meetings in the remainder of 2022, one on November 2 and the other on December 14. A combination of one 50bp hike and one 75bp hike was on the cards.
On November 2, the Fed delivered a 75bp hike, bringing the policy rate to 3.75-4.00%.
As things stand, the market expects a 50bp increase on December 14. On December 13, the US Bureau of Labour Statistics is to release the
November reading.
Tightening via both monetary and fiscal policies is marking out the current period. How long it can possibly last is under observation. The finance industry is already stepping forward with media campaigns on reversing the tightening.
7 TURKEY Country Report December 2022 www.intellinews.com