The first 100 days

Last Thursday marked the 100th day of Joe Biden’s presidency in the U.S., and over that time the S&P 500 Index has gained 10.9%. Purely judged in stock market terms, this marks the most successful start to a presidency since Franklin Roosevelt in 1933, who swiftly passed a number of measures to get the country out of the Great Depression. With the raft of proposals coming out of the new administration, multiple commentators have begun to speculate whether Biden could be a transformational president, much in the manner as Roosevelt and the New Deal, or Lyndon Johnson and the Great Society. Of course, a presidency cannot solely be judged on 100 days, as all manner of surprise factors could still intervene.


Governor Sahap Kavcioglu tries to keep to the orthodox language, but the assumptions in the inflation report look very optimistic. First, they assume Covid eases and tourism recovers from Q2. They also assume that after strong growth in Q1, the economy slows in Q2. This seems both optimistic and inconsistent in my view. Second, while he revised end year inflation forecasts from 9.4% to 12.2%, he talks about inflation peaking in April at 17%, from 16.2% in March, and then obviously moderating thru year end. But let’s not forget that the currency has weakened around 18% since Agbal was fired and that has to add surely at least 2ppts onto inflation. Listening to him, and reading the report, the whole message is of inflation pressures from import prices, food and energy, a positive output gap, and also he showed a chart with credit growth bouncing back. When he talks about keeping positive real rates, he is hoping that he is right and inflation does peak at 17%, then he does not have to hike beyond the current 19% rate.

-Tim Ash, strategist, Bluebay, April 29


Governor Sahap Kavcioglu remarked that April could mark the peak for CPI inflation. The CBRT also raised its end-2022 inflation forecast up from 7% to 7.5% but left its end-2023 unchanged at 5%. The problem, however, is that inflation may not peak as clearly as Kavcioglu is hoping for – remember, the lira exchange rate has fallen by a further c.15% only recently when Kavcioglu was appointed, and the FX pass-through from that slide is yet to show up. More crucially, USD -TRY has been stable at around 8.20 only because the market thinks that Kavcioglu is not about to cut rates. As soon as he makes his first cut, the exchange rate could resume a depreciating trend, which will push inflation upward. We hold a pessimistic base-case scenario along these lines: we forecast higher than 20% inflation at the end of 2021 on the assumption that USD -TRY will reach 10.00 because rates will be cut even when inflation is far above target. The goldilocks scenario – where inflation keeps moderating, rates are then lowered, the market is satisfied, so the lira does not depreciate, which keeps President Tayyip Erdogan happy with the CBRT governor – still appears fanciful.

Tatha Ghose, strategist, Commerzbank, April 30

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