Turkish markets were largely unchanged last week as markets entered a holding period before the municipal elections this Sunday.
The Central Bank of Turkey (CBT) kept key rates steady ahead of the vote and with no other important data being released, Turkish markets turned to the U.S. Federal Reserve meeting for a signal of where global interest rates would be heading. Manufacturing data from Europe disappointed Monday, which left European markets to start the week in the red. Russian annexation of Crimea has not had the dire consequences on the global economy some predicted and a new normal in the Black Sea appears to have set in.
The CBT left the key interest rates of borrowing, lending, and repurchasing at 8 percent, 10 percent and 12 percent respectively as was widely expected. Turkish foreign exchange markets have also seen the lira settle into a relatively less volatile period following the roller-coaster ride of the last three months, with a modest win by the ruling AK Party across the country priced into currency futures. Any upsets in major cities would be an indication of changing political sentiment in Turkey and would affect the upcoming presidential vote slated for early August of this year. On Sunday, Prime Minister Recep Tayyip Erdoğan headlined his party's largest political rally to date in Istanbul, with attendance estimated over two million, making it the largest rally in Turkey's history. During his speech, Erdoğan pulled a few punches with heated barbs aimed at his political opponents, upping the already-high stakes placed on this election.
Federal Reserve Chairwoman Janet Yellen headed her first meeting of the Fed Open Market Committee, which met last Tuesday and Wednesday. The guidance set forth in the meeting translated into an increase in interest rates six months earlier than previously expected by global markets.
This was unexpected by both U.S. and global markets, which took a hit following her announcement.
Markets anticipated a continued tapering of bond repurchasing by the Fed to end in the fall, followed by a "considerable time" period of one year at which point interest rates may increase from their current nearzero level. When pressed for a date, Yellen indicated that a considerable time, "probably means something on the order of around six months." Following her words the dollar jumped against all major currencies and gained about one percent in a few minutes.
It was a refreshing beginning to her tenure at the Fed following years of predictable ambiguity by the previous head, Ben Bernanke.
Monday morning saw the release of European manufacturing data with mixed results.
Although France's manufacturing sector grew for the first time in two years, European powerhouse Germany missed the mark with a slowdown in growth based on purchasing managers' survey results. European markets were down across the board on Monday, with the release of the surprising data as Turkey started the week flat mid-day.
The Russian annexation of Crimea was signed into law by Russian President Vladimir Putin on Friday making official the return of the Crimean peninsula to Russia half a century after it was given to the Ukrainians in 1954 by the head of the former Soviet Union, Nikita Khrushchev, himself an ethnic Ukrainian. Meanwhile in Brussels the Ukrainian prime minister, Arseniy Yatsenyuk signed a trade agreement with the EU, aligning Ukraine further west.
EU officials joined their U.S. counterparts in issuing travel bans and freezing assets of Putin loyalists, a move that will probably be the end of the Crimean crisis for the near-term as Russia expands its presence in the Black Sea.
This week real sector confidence and capacity utilization data will be released Tuesday afternoon, followed by the consumer confidence index on Friday. There should be no real surprise in any of the data reported and this week markets will only be swayed by any major change in political sentiment ahead of this weekend's elections