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Lira Crashes To All Time Low After Turkey Shocks With 200bps Rate Cut Despite Soaring Inflation

Lira Crashes To All Time Low After Turkey Shocks With 200bps Rate Cut Despite Soaring Inflation

To be fair, the writing has been on the wall…

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This article was originally published by Zero Hedge

Lira Crashes To All Time Low After Turkey Shocks With 200bps Rate Cut Despite Soaring Inflation

To be fair, the writing has been on the wall for the past three years, ever since Turkey’s authoritarian ruler and de facto central bank head Erdogan started firing Central Bank governors any time they refused to cut rates to fight inflation in compliance with Erdoganomic, a reminder of which we got just last week when Erdogan fired three more Turkish central bankers, sending the lira plunging…

… in a move which we suggested that one way or another, Erdogan wants hyperinflation, and currency collapse.

So fast forward to this morning when central bankers, knowing they would lose their jobs if they didn’t slash rate by even more than the market expected (and the market expected a generous 50-100bps) cut despite the highest inflation in over two years (the latest CPI print came in at 19.58%), had no choice but to slash and they did just that and Turkey’s Central Bank cut its one-week repo rate by 200bps, from 18% to 16%, double what consensus expected (15 of 26 economists in Bloomberg’s survey expected 17.00%, with the rest expecting a 50bps cut), arguing inflation is “transitory” if adding that it has limited room left for further reductions this year (actually no, it will keep cutting because that’s what Erdogan wants).

The “recent increase in inflation has been driven by supply side factors,” the central bank said, calling them transitory. “The Committee assessed that, till the end of the year, supply side transitory factors leave limited room for the downward adjustment to the policy rate.”

Putting the rate cut in its (hyperinflationary) context, the rate cut virtually guarantees that Turkish inflation is about to turn even more hyper :

In a hilarious twist, the TCMB justifed this insane move by pointing the finger to “advanced economy” central banks and arguing that since they see inflation as temporary – and since the Fed continues to inject hundreds of billions of liquidity every month – surely inflation must be transitory, and so Turkey can surely afford a rate cut, to wit:

Central banks in advanced economies assess that the rise in inflation would be mostly temporary along with normalization in demand composition, easing of supply constraints and waning base effects. Accordingly, central banks in advanced economies continue their supportive monetary stances and asset purchase programs

Recent increase in inflation has been driven by supply side factors such as rise in food and import prices, especially in energy, and supply constraints, increase in administered prices and demand developments due to the reopening. It is assessed that these effects are due to transitory factors

All one can do here is laugh. Anyway, here are some more “explanations” for the shocking cut:

Despite the recovery in global economic activity in the first half of the year, recently published confidence indices have started to decline due to the effect of the pandemic….

The MPC assesses that, until the end of the year, supply-side transitory factors leave limited room for the downward adjustment to the policy rate.

Leading indicators show that domestic economic activity remains strong, with the help of robust external demand… Improvement in annualized current account is expected to continue in the rest of the year.

Meanwhile, the “tightness in monetary stance has started to have a higher than envisaged contractionary effect on commercial loans. Strengthened macroprudential policy framework has started to curb personal loan growth.” Or said otherwise, if we don’t cut, the big bogg will fire us all.

In parting, the TCMB said that the “Bank will continue to use decisively all available instruments until strong indicators point to a permanent fall in inflation and the medium-term 5% target is achieved.”

Not surprisingly, now that it is abundantly clear that Erdogan will sacrifice the lira before he admits he has been wrong all along, the TRY crashed to a new all time low, plunging as much as 2.9% to just shy of 9.50 vs the USD, a move which we are confident will only accelerate to the downside with Erdogan having openly invited hyperinflation, and only a popular uprising having some chance of halting this catastrophic turn of events, yet a revolution will hardly be lira positive and as such expect much, much more weakness in the now doomed currency.

The cut “can be interpreted as a very strong message to market participants that the central bank intends to ease monetary policy regardless of negative consequences of the precipitous fall in the value of the lira,” said Piotr Matys, a senior currency analyst at InTouch Capital in London, echoing what we said one week ago.

“Today’s decision is an obvious disregard of warnings the market has already sent the CBRT that lowering rates – when inflation is close to 20% and core inflation cannot be used as a valid argument to cut rates – is a policy mistake,” Matys said, referring to the central bank by its English-language acronym.

Erdogan’s central bank puppet, Kavcioglu will update the bank’s base-case scenario for inflation through the rest of 2021 and the following two years on Oct. 28, and answer questions from economists and reporters. The central bank currently sees consumer-price growth finishing the year at 14.1%, a more optimistic forecast than the government’s latest estimate of 16.2%. In reality, expect hyperinflation.

Tyler Durden
Thu, 10/21/2021 – 07:26






Author: Tyler Durden

Economics

Goldman Slams Omicron Panic: “This Mutation Is Unlikely To Be More Malicious; No Reason For Portfolio Changes”

Goldman Slams Omicron Panic: "This Mutation Is Unlikely To Be More Malicious; No Reason For Portfolio Changes"

One look at the ridiculous…

Goldman Slams Omicron Panic: “This Mutation Is Unlikely To Be More Malicious; No Reason For Portfolio Changes”

One look at the ridiculous plunge across asset markets on Friday, which sent oil into one of its biggest tailspins in history (which as Goldman calculated would only make sense if the Omicron lockdowns are twice as bad as anything observed so far), and one would think that the Omicron variant – which as Edward Snowden so aptly put it “sounds like the name of an 80s movie’s evil Robot King” (of course, the WHO had no choice but to skip the Xi variant, located right before Omicron in the Greek alphabet for obvious propaganda reasons) – is several times more aggressive and far more deadly than the Delta or any other Covid variant to date. Neither is the case, and in fact, as even Tom Peacock, one of the original Imperial College narrative-setters admitted, “it may turn out to be an odd cluster that is not very transmissable.”

Alas, that would not help politicians who kill a lot of birds with just one brand new and “horrifying” variant, including getting a carte blanche for trillions in new vote-buying stimmies, enforcing even more ruthless and authoritarian government restrictions a dream come true for all liberal fans of big government, and most importantly forcing another round of mail-in ballot elections one year from today. 

And yet, perhaps the pandemic apocalypse is not just around the corner. On one hand, Angelique Coetzee, the chairwoman of the South African Medical Association said today that the new Omicron variant of the Coronavirus results in MILD disease, WITHOUT prominent symptoms.” On the other, none other than the most important bank on Wall Street – Goldman “Vampire Squid” Sachs – which sets the narrative that all other banks dutifully follow, has decided that it’s not worth starting a panic crash over this mutation and in a note published late on Friday writes that “this mutation is unlikely to be more malicious and that the existing vaccines will most likely continue to be effective in preventing hospitalizations and deaths” and as a result, while Goldman “would monitor the situation in Gauteng closely over the next month, we do not think that the new variant is sufficient reason to make major portfolio changes.

Translation: brace for a face-ripping rally come Monday when carbon-based traders finally take over from the idiot algos.

Below are more details from Goldman’s London trader Borislav Vladimirov who penned his “Initial thoughts on risks from the B.1.1.529 variant and market implications.”

Main points

  • While we do not have sufficient information to forecast a global B.1.1.529 wave, a high rate of transmission almost inevitably leads to a variant’s dominance.
  • Nevertheless, the South Africa NICD (link to their Q&A here) note that this mutation is unlikely to be more malicious and that the existing vaccines will most likely continue to be effective in preventing hospitalizations and deaths. The current PCR and antigen tests are expected to continue to identify the mutation.
  • As such, while we would monitor the situation in Gauteng closely over the next month, we do not think that the new variant is sufficient reason to make major portfolio changes.
  • Having said that, given the time of the year and liquidity as well as policy risks in December, investors could consider short term hedges for growth sensitive risky assets.

We would start from what we know:

  • The variant has a large number of mutations
  • It has the P681 H spike protein mutation associated with the higher transmissibility of Delta
  • Currently no unusual symptoms have been reported following infection with the B.1.1.529 variant and as with other variants some individuals are asymptomatic.
  • It is easy to identify and hence monitor – The B.1.1.529 lineage has a deletion (△69-70) within the S gene that allowed for rapid identification of this variant in South Africa and will enable continued monitoring of this lineage irrespective of available sequence data.
  • Most likely current PCR and Antigen test will continue to identify it well.

Potentially high transmissibility has triggered market concern:

  • It is gaining pace rapidly sequencing  90% of new cases just 2 weeks since emergence. For comparison the Delta needed 3 months to reach that intensity. This is the most concerning data point that has attracted market attention.

  • One caveat is that the fast acceleration data could be skewed by location. The virus is spreading in Gauteng which is the largest and most densely populated province of SA. (15.2mio people with population density that is 17.3x higher than the country average)
  • The level of restrictions in SA at the moment (measured by the government stringency index) is low (relative to Israel or Austria for example, see chart below). This can be helping faster spread that isn’t necessarily driven exclusively by the virus characteristics

  • Cases of B.1.1.529 have been identified in Botswana, Israel and Hong Kong. If the variant is highly transmissible, it is most likely that it will eventually spread despite travel restrictions.

What we still do not know…

  • We have no information on the variant’s impact on hospitalizations and mortality. A careful monitoring of the Gauteng data over the next two weeks is essential.
  • There are reports that two of the cases were fully vaccinated. This is a very small sample to make any conclusions and we do not know for how long the patients were vaccinated. What we know from Delta is that antibody levels wear off between 6 and 9 months after the second vaccine and that while the vaccines are less effective in preventing infection, they are still highly effective in preventing hospitalization and death. For the time being there is no reason to believe that this variant will be different in that respect.
  • Will the Pfizer pill be effective against the new mutation?
  • Is the European wave driven by the new variant?
  • While the new variant could be present in Europe, the rapid rise in cases is driven by the Delta variant (see information below)
  • The European data comes with about a month delay from sequencing time so we should know more by the third week of December (unless the process accelerates due to the attention on the new variant)
  • Efforts to limit the current Delta wave in a number of European countries could help preventing the spread of B.1.1.529, if already present.

Is the above a reason to be concerned?

  • A very broad press focus in the past 24h has received high market attention.
  • It will take weeks before we get additional official information and scientific evidence about the potential risks.
  • This comes at a time when investors have been surprised by some of the lockdown measures announced in Europe
  • And also when real growth is likely to fall meaningfully on higher inflation (even though nominal growth is likely to stay well above average)
  • At this time of the year positions in risky assets, especially after strong YTD gains, could be vulnerable to short term corrections (ie 2018 template)
  • Travel restrictions will delay the process of logistics network normalization which would imply that the supply capacity constraints easing anticipated for H2-2022 might take longer to materialize.
  • Meanwhile, monetary policy has recently shifted gears to signal faster removal of accommodation which could add to a short-term risk aversion into the December FOMC.  

Conclusion: while we do not have sufficient information to forecast a global B.1.1.529 wave, a high rate of transmission almost inevitably leads to a variant dominance. Nevertheless, we can have reasonable degree of confidence that this mutation is unlikely to be more malicious and that the existing vaccines will most likely continue to be effective in preventing hospitalizations and deaths. As such, while we would monitor the situation in Gauteng closely over the next month, we do not think that the new variant is sufficient reason to make major portfolio changes. 

Tyler Durden
Sat, 11/27/2021 – 16:59





Author: Tyler Durden

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Precious Metals

Peter Schiff: The ‘Devil You Know’ Is Still A Devil

Peter Schiff: The ‘Devil You Know’ Is Still A Devil

Via SchiffGold.com,

On Monday, President Joe Biden reappointed Jerome Powell to head…

Peter Schiff: The ‘Devil You Know’ Is Still A Devil

Via SchiffGold.com,

On Monday, President Joe Biden reappointed Jerome Powell to head up the Federal Reserve and nominated Lael Brainard to serve as the vice-chair. In his podcast, Peter Schiff talked about Biden’s decision, the markets’ reaction and what the Fed will (or will not) do moving forward. Ultimately, Peter said the devil you know is still a devil.

Peter predicted Biden would stick with Powell. He said there was no political upside for him to do otherwise.

If something happened, something goes wrong, which something is going to go wrong most likely — so, it’s going got hit the fan — and if it hit the fan with Brainard at the helm, well, Biden would own it. People could say, ‘Oh, the reason the economy went off a cliff, the reason that inflation is running out of control, it’s all because you put Brainard in as Fed chairman.’ Whereas, if everything falls apart under Powell’s watch, well, Biden can simply say, ‘It’s not my fault. Powell was Trump’s guy. I just left him in power because he was already there and there was bipartisan support.’

If things go well under Powell, Biden can take credit, saying, “Hey, I renominated him.”

Peter said the crazy thing about the announcement, which was entirely predictable, was the market reaction. In the two days after the announcement, gold sold off by over $60 dollars and fell back below $1,800 an ounce. Silver took an even bigger hit, down about $1.25. Meanwhile, there was a big rally in the dollar index and bond yields went up. Peter said it makes no sense.

All of a sudden, Powell, the guy who’s been there the entire time, almost four years, the architect of this reckless monetary policy, zero percent interest rates, huge quantitative easing, inflation is transitory, there’s nothing to worry about — the same guy who brought us to this inflation party — we’re going out with the same guy again and everybody now is celebrating that somehow this massive dove has become a hawk. All of a sudden, everybody is excited that Powell is going to fight inflation in his second term.

What makes people think Powell is suddenly going to become an inflation warrior? He hasn’t fought it at all up to this point.

He spent his first term lighting inflation fires. Why anybody believes he’s going to put out those fires in his second term is beyond me.”

The reaction in the gold market was particularly puzzling. Just a couple of days ago, people were buying gold because they were worried about inflation. The yellow metal pushed above $1,850 after October CPI came in much hotter than expected.

One of the main reasons to be worried about inflation was because Powell was chairing the Federal Reserve. And Powell had made clear that the Fed is doing nothing about inflation. They think it’s transitory anyway. … If you were worried about inflation and you were buying gold a couple of days ago, why are you suddenly no longer worried about inflation and dumping your gold?”

Sure, Brainard would have likely directed a slightly looser monetary policy than Powell. But she’s not that much more dovish than Powell.

Powell’s not a hawk. And so, simply because we didn’t replace one dove with an even bigger dove doesn’t mean the dove that’s still there is going to turn into a hawk and suddenly start fighting inflation. He’s not.”

If anything, the makeup of the FOMC will be even more dovish now than it was before with Brainard serving as vice-chair.

If you were worried about inflation and the current FOMC, you should be even more worried, or slightly more worried as a result of this change than you are right now. Yet the market is acting as if everything has changed and we’re going to have this tough on inflation Fed.”

After the announcement, Biden, Powell and Brainard spoke to the press. All three talked about fighting inflation. Peter said he thinks the articulation of that commitment got everybody thinking that the central bank is now serious about the inflation problem. None of this makes sense

Politically, they have to say they’re against inflation because inflation is all over the news. It’s what everybody is complaining about. So, even if they have no intention of doing anything about it, they have to at least create the pretense that that’s what they’re going to do. So, you wouldn’t expect anything less. But even if, as a result of this tough talk on inflation, they actually do taper a little bit quicker and raise rates a little bit sooner, who cares? Because even a quicker pace is meaningless in the face of what’s going on.”

Even using the government numbers, inflation is running at around 7%. It would likely be double that using real numbers.

In order to rein in this inflation in the 1970s, or by 1980, rates had to go to 20%. All we’re talking about is a couple of rate hikes. We won’t even raise rates up to 1%. So, why should this make any difference to an inflation rate this high? If you could fight inflation with 1% interest rates, well, why didn’t we do that in the 1970s? It’s because you can’t — especially when inflation is already as bad as it is right now. And by the way, it will be even worse by the middle of 2022 when they finally get around to supposedly raising interest rates — if they actually do it.”

Meanwhile, during the taper, the Fed will still be doing quantitative easing. That, by definition, is creating even more inflation.

You can’t put out a fire by pouring less gasoline on it. Because any gasoline you pour on the fire is going to make it bigger. That’s all the Fed is claiming it’s going to do.”

To truly fight inflation, the Fed actually needs to tighten. It needs to shrink its balance sheet and shrink the money supply. It’s not talking about doing that.

On top of that, Biden needs the Fed to keep inflating and monetizing the deficits in order to pay for all of his massive spending plans.

If the Fed tapers to zero, there’s no way the private sector would finance all these deficits without the help of the Fed. I don’t know why no one has put two and two together — that what the Fed is promising is impossible.”

Tyler Durden
Sat, 11/27/2021 – 15:45












Author: Tyler Durden

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Economics

Global Fertilizer Shortage Threatens to Send Food Prices Even Higher

A global shortage of nitrogen fertilizer has pushed prices upwards to record-highs, threatening to raise already-elevated food prices even higher.
The…

A global shortage of nitrogen fertilizer has pushed prices upwards to record-highs, threatening to raise already-elevated food prices even higher.

According to Argus Media, nitrogen fertilizer prices have soared to the highest in nearly a decade, with prices already up 80% since the beginning of the year. Farmers apply the chemical ahead of the planting season to boost yields for a variety of crops, including corn, canola, and wheat; however, with the sharp upward trajectory in prices, some crop producers have decided to delay their nitrogen fertilizer purchases, which could result in a cascade of rush-buying come spring,

In that event, demand for the commodity would suddenly skyrocket, leaving some without the fertilizer altogether due to shortages. According the Guardian, which cited US Agricultural Retailers Association CEO Daren Coppock, there is currently still enough fertilizer supplies for an application before winter, but with prices accelerating fast, “there’s going to be a lot of people who wait and see.” And, in that event, “if everybody’s scrambling in the spring to get enough, somebody’s corn isn’t going to get covered,” which could ultimately lead to even higher bread and meat prices next year.

Global food prices hit the highest level in 10 years in October, marking an increase of more than 30% compared to the same period one year ago, according to data compiled by the United Nations Food and Agriculture Organization (FAO). If strong crop yields fail to materialize in 2022, food inflation will accelerate even further, which could lead to widespread famine across some parts of the world.


Information for this briefing was found via the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Global Fertilizer Shortage Threatens to Send Food Prices Even Higher appeared first on the deep dive.


Author: Hermina Paull

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