Global financial markets continued to slide on growing economic uncertainty in Europe and emerging markets as well as widening armed conflict in the Middle East. The European Central Bank's (ECB) decision to leave interest rates intact at 0.05 percent and growing concern over consumer spending in the Eurozone continues to dim the financial prospects of Europe for the near future. Oil prices continued to slide, despite growing political uncertainty in oil exporting regions, generally a leading indicator of a global economic slowdown.
The benchmark BIST-100 index traded lower on Wednesday, down nearly two percent after a late start to the week following the Eid al-Adha holiday. The BIST-100 stood at 72,853 points near the end of trade on Wednesday.
Fixed income markets didn't fare any better with the two-year benchmark government issue trading at a yield of 9.63 percent late Wednesday, up 12 basis points for the day after being flat for the past week. The long-end ten-year bond traded at a yield of 9.51 percent, up seven basis points on the day also had a flat performance over the past week. The inverse relationship between bond yields and prices implies that a drop in price increases a bond's yield and vice versa.
The Central Registry Agency's (MKK) foreign participation in Turkish equity markets index was down 26 basis points to 63.09 percent, its lowest level in 4 months, as foreign investors took some money off of the table, however foreign ownership of Turkish equities is still very much at a healthy level indicating foreign investors continue to believe in the growth story of Turkey.
Insurance against economic and financial instability measured by credit-default swaps (CDS) traded much lower on Wednesday as it appeared the assaults on the Islamic State of Iraq and al-Sham (ISIS) by the U.S.-led coalition was making an impact on their advances. CDSs had traded as high as 2.07 percent last week but were down below 2.0 percent on Wednesday, trading at 1.98 percent by the end of the trading session in Turkey. Such a dramatic drop is indicative of a realization that indeed ISIS can and will be stopped and that Turkey will not be effected by its presence for much longer.
The Turkish lira traded lower against the U.S. dollar by 0.01 lira, finishing up at 2.28 liras/dollar by mid-afternoon on Wednesday. It had rallied against the dollar on Monday and is still trading better than it had on Friday when the assault on ISIS forces in Syria really picked up the pace. The lira had traded near 2.30 liras to the dollar on Friday, battling back to 2.26 liras on Monday before losing ground against the dollar again on Wednesday. The 2.15-2.30 band appears to be the de facto range for the lira/dollar pair until inflation worries are addressed and the ISIS threat is neutralized.
Credit ratings agency Fitch Ratings remarked early Wednesday that Brent crude oil may continue to fall below $80 (TL 183.17) a barrel in the near future. It currently trades at $91 a barrel and such a drop would seriously hurt the budgets of exporters of oil, including Russia and Persian Gulf countries. Although a sustained drop in oil prices would be detrimental to the balance sheets of neighboring governments, it would be great news for Turkish consumers and producers as Turkey is nearly fully energy dependent and such a drop would immediately add disposable income to Turkish consumers' wallets. Heavily reliant on consumer spending, the Turkish economy would benefit immediately from such a drop.
On Friday, manufacturing data is to be released for the month of August and no other major data will be coming to the market for this abbreviated trading week. Increased fighting on the Turkish border at Kobani between ISIS and Kurdish fighters points to a temporary victory for ISIS forces and emphasizes the urgency for the anti-ISIS coalition to come together in putting down the insurgency. Any sustained presence of ISIS on the Turkish border will continue to hurt financial markets and the immeasurable cost of loss of life will continue to grow unless more assertive steps are taken to put-down the terrorists.