A difficult period for the Turkish Lira which last week made the worst performance against American Dollar in more than a year, and whose difficulties bring the price down against EM currencies too on the back of the increasing possibility of new elections which inevitably fuel the concerns about the Turkish economy and the credit rating of the country (recently increased).
Concerns about the Turkish economy were favored by the resignation of his prime minister, in a very hard week for the Emerging countries too, with the MSCI index down for six consecutive sessions.
The prime minister Ahmet Davutoglu retirement left the government in the hands of the president Tayyip Erdogan despite the rating agency S&P Friday changed the credit rating of the country in BB+ from negative to stable.
A Turkish lira which is now extremely vulnerable to both domestic or external shocks and which at the moment is trading against the Greenback at 2,9187 with the USD/TRY down 0,30% after last week’s big gains.
Even the Turkish equity index, the XU100, is moving down at the time of writing, making a negative performance of 0,42%, while the Turkish 10-year Bond continue to have the higher yields in a month. If we take a look at the CDS (Credit default swaps) market, another important indicator of the market sentiment, we can see that the yield of the 5-year CDS has increased to 270bps, making a 2 month high and indicating that the perception of the market regarding the Turkish economic situation has changed.
Despite the increasing in the credit rating, however, the Country continue to have clear problems, mainly related to the Geo-Political situation, which continue to have a big impact to both FX and Equity market.
The Turkish path to get out of a difficult economic situation looks increasingly long and complicated..