Market Pushes First Rate Hike Into 2022

Turkey reported inflation accelerated last month. The 1.08% increase in March follows the 0.91% increase in February. The year-over-year rate stands at 16.19%, up for the sixth consecutive month and the highest level July 2019. The core rate is even higher at 16.88% and more than 0.5% above expectations. Producer prices also soared. The 4.13% monthly gain was near twice expectations and lifts the year-over-year rate to 31.2%. Rising energy prices and the weak lira appear to be the main culprits. Separately, military officers reported pushed back against President Erodgen's Black Sea policy. After pulling out of the international convention to protect women last month, there is suspicion that Erdogan is considering withdrawing from a 1936 treaty that regulates passage from the Mediterranean to the Black Sea. At least ten former admirals were detained. The lira is a little firmer today. It fell by 10% last month following the former governor of the central bank's dismissal after a 200 bp rate hike. Today's inflation report will make it harder to reduce rates at the April 15 CBRT meeting.  

The euro approached $1.17 at the end of March and traded to about $1.1785 ahead of the weekend. Unable to resurface above $1.18, it is under a bit of pressure following the strong US jobs report and the new lockdowns in Europe. There is a 210 mln euro option at $1.18 that expires today and one ten-times bigger that expires tomorrow. The market is poised to rechallenge the lows. Sterling is firm and rose above last week's high (~$1.3855) to its best level in two weeks ($1.3870). However, sellers emerged ahead of the $1.3880 resistance, and a return into the $1.3820-$1.3840 comfort zone is likely.  

America

The March US employment data quantified what we have all known, and that is that the world's largest economy is accelerating. The 916k increase in non-farm payrolls was well above most expectations, and the January and February job growth was revised higher (+156k). The report, coupled with the surge in auto sales (17.75 mln, two million more than in February and more than million above the median expectation in Bloomberg's survey), likely sets the tone for the upcoming high-frequency data. Moreover, the early projections call for job growth to possibly continue to accelerate this month as the vaccine rollout broadens and more people return to their jobs. The US lost about 22.4 million jobs last spring, and roughly 14 mln people have returned to work. That leaves employment around 8.4 mln lower than in February 2020.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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