Skip directly to Accessibility Notice
  • Emerging Markets Debt Daily

    Turkey External Gap Narrows Further

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    January 11, 2019

    Turkey’s current account posted yet another surplus in November, benefitting from last year’s devaluation. Brazil’s inflation prints are fully in line with the market expectation of no rate hikes until much later this year.

    Turkey’s current account posted its fourth consecutive surplus in November (USD0.99B, a touch wider than expected), showing the ongoing beneficial impact of last year’s devaluation and pushing the 12-month running current account gap to an estimated 4% of gross domestic product (GDP) (down from 6.52% in Q2 2018, see chart below). On the capital account side, the return of portfolio inflows boosted the central bank’s international reserves. Turkey’s external adjustment has been exemplary so far. Looking forward, the key risk comes from a laxer fiscal stance in the run up to the local election (and potentially beyond, if growth continues to surprise to the downside).

    The price outlook in Brazil remains benign, with December’s headline inflation moderating confidently to 3.75% year-on-year (just a tiny bit above consensus). As part of our risk-monitoring, we keep an eye on a higher diffusion index1 (61.1% in December), as well as increases in several core inflation sub-components. However, overall core inflation remains low, and large output gap and high unemployment (11.9%) should keep underlying price pressures under control for now. The latest inflation prints continue to support the market expectation of the central bank staying on hold at least until September-October.

    The latest inflation prints in the U.S. seem to be in line with the “waiting and watching” attitude (against a backdrop of economic crosswinds) expressed yesterday by Federal Reserve Chairman Jerome Powell and Vice Chairman Richard Clarida. Headline inflation eased to 1.9% year-on-year and core stayed unchanged at 2.2%, as expected. The 3-month core inflation momentum accelerated only marginally, staying well within the post-crisis range, while the headline inflation momentum continued its sharp decline. The numbers gave an extra leg to U.S. rates’ morning rally and cemented the U.S. dollar’s weakness against the euro.


    Chart at a Glance

    Turkey Current Account Balance

    Source: VanEck; Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

    The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.

    Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

    All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.