Turkish markets were volatile this past week as concerns over deepening Russian involvement in Crimea grew. Markets were up during the week after positive data was released on Monday. News broke [JM1] of healthy bond issuances and Russia announced that it was ending surprise military maneuvers near the Ukrainian border on Tuesday.

The bulls were quieted on Friday, however, as Russian hawks soared and U.S. data hit emerging markets hard.

Last Monday, the Turkish producer price index (PPI) and consumer price index (CPI) respectively showed inflation in line with expectations on the PPI side, with a slight bump in core CPI from expected values.

However, Russia and the future of the Black Sea region was of more importance to most investors in Turkey who see Russia as an important trading partner and energy conduit. News that Russian forces would be pulled back to Russian-leased bases in Crimea settled worries of armed conflict there during weekly trading, however after Borsa Istanbul (BIST) closed, Russian lawmakers signaled their willingness to endorse the annexation of Crimea, news which will undoubtedly spook regional markets.

Non-farm payroll numbers came in much better than expected which cost U.S. equity markets to rise and hit emerging markets especially hard. Although the U.S.

Congress has been at its most polarized during the presidency of Barack Obama and support for him is at near all-time lows, perceived "Russian interference" by way of potentially seeking to annex Crimea appears to have united them temporarily. The U.S. House has already passed an economic aid resolution by a vote of 385-23 for the fledgling Ukrainian government while the president signed an executive order implementing sanctions on a dozen or so Russian and Ukrainian citizens.

Talk of seizing financial assets is widespread on both sides of the Bering Strait even as U.S. Secretary of State John Kerry and Obama continue discussing developments with their counterparts, Foreign Minister Sergey Lavrov and President Vladimir Putin. For his part, Putin has left talks of annexation to his own lawmakers and those of the regional Crimean legislature, both of which have voiced support for the March 16 referendum which they say will decide the fate of Crimea. The Ukrainians have been joined by the U.S. and EU in calling this snap referendum illegal.

Such turmoil and uncertainty has already led to the devaluation of the Russian ruble as well as a decline in Russian equities. Apparently the Russian leadership believes the benefits of a Crimean Republic within the Russian Federation far outweigh the negative economic impact it has already had on Russian markets.

Turkish markets will have to keep a close eye on Russia while pouring over Industrial Production data that will be released today at 10:00 a.m. and current account balance numbers scheduled to be published on Wednesday.

Speaking about the impact of recent events on emerging markets including Turkey, Emrah Ahi, known in fixed income circles as the "Turkish Bond King," said that emerging markets are "in a risk-on mode as Indian and South African stock exchanges are at record highs."
Ahi went on to endorse Turkish markets, remarking, "Turkey offers the highest bond rates where fundamentals offer value and equities are cheap in valuation terms.

I expect a bond and equity rally after the elections and if investors see polls indicating that the AK Party will hold on to important municipalities, we could see a healthy rally one or two weeks before the March 30 elections."

Whether Ahi's predictions of an interest rate peak and equity bottom in Turkey are sound will be known in the coming days. Predictions of winners and losers of the current Ukrainian stand-off and the potential spillover to Turkey will have to wait for the referendum and the subsequent moves both sides take as the stakes become increasingly higher.