Market Bulletin | New world order: Risks and opportunities

Russia’s attempt to invade Ukraine continues to be at the top of the agenda. Of course, while the human tragedy continues to hurt all of us deeply, even China broke its silence yesterday and announced that they would make efforts to prevent the war from getting worse. Russian Foreign Minister Lavrov, on the other hand, brought the dimension of uncertainty to the next level when he said “the third world war will be nuclear and destructive” with a threatening opening.

The market reflection of the developments undoubtedly continues to be negative. While the barrel price of western Texas crude oil rose to the level of 114 dollars this morning, Brent oil rose to the highest level of the last 9 years with 118 dollars. We see that the war situation in Ukraine, which is the granary of the world, has returned to 2008, the period of global crisis, with wheat prices approaching 11 dollars this morning. The rise in commodity prices in general means that the threat of inflation for the global economy increases.

From the bread we eat (wheat), to the undershirt we wear (cotton), from the gas tank we fill (crude oil), to the industrial metals used in industry, the price of everything has almost ‘inflated’. While there is no doubt that the world’s increasing sanctions against Russia will seriously harm the Russian economy and put Russian companies in a very difficult situation, the world is clearly faced with the threat of inflation and the accompanying recession in the shadow of war and sanctions. This is called stagflation in economics books.

Fitch and Moody’s downgraded Russia’s sovereign credit rating by six notches to “garbage” status and said Western sanctions cast Russia’s ability to pay its debt into question and weaken its economy. On the other hand, the United Nations condemned the Russian invasion of Ukraine. Turkey voted in favor of the voting, 141 countries voted yes and 5 countries voted against (Russia, Syria, Eritrea, Belarus and North Korea). Let’s note that 35 countries, including China, did not participate in the voting. The second round of talks planned between Ukraine and Russia will take place today in Brest, on the border with Belarus. There is no great hope for a meeting.

In the face of the developments, we see that the markets flock to safe havens. In an environment where disruptions in the supply chain cause commodity prices to skyrocket, the US dollar gains in value as a safe haven. Basket DXY, the market rate of the dollar, rose to the level of 98 this morning, testing the top of the last 9 months. Similarly, the 10-year US bond yield, which is the market rate of the dollar, decreased to 1.7% at the beginning of the week and recovered to 1.9% yesterday with the statements of FED Chairman Powell.

Fed Chairman Powell reiterated his guidance that the “extremely tight” labor market requires interest rates to be raised, even as he announced this month that they will adhere to a rate hike plan to contain high inflation, but the outbreak of war in Ukraine has made the outlook “extremely uncertain” for Fed policymakers. Emphasizing that they will start raising interest rates “carefully”, Powell underlined that they are ready to act even more aggressively if the inflation outlook does not improve.

Yesterday, we followed the leading foreign trade data of February announced by the Ministry of Commerce. In February, exports increased by 25.4 percent compared to the same month of the previous year and reached 20 billion dollars, while imports increased by 45.6% to 28.1 billion dollars due to the increasing energy demand due to the harshest winter conditions of recent years. Thus, the foreign trade deficit increased by 142% in February to 8.1 billion dollars, and increased by 186.3% in the first 2 months to 18.4 billion dollars. We see that deficit records were broken in the slogans of weak TL, strong exports and current account surplus, which the new economy model put into use!

One of the reasons why there is depreciation pressure on TL lies in foreign trade data. The USDTRY rate increased to 14.13 yesterday. However, under the current global conditions, we continue to see that the rise is also very limited with the ongoing support of the public. Of course, it should not be forgotten that public support also has a limit or capacity. On the currency front, we see risks on the upside.

After the increase in the sanctions against Russia and the swift ban, Bitcoin once again tested its critical resistance at the level of $ 45,500, as we mentioned in our bulletin yesterday. Technically speaking, a weekly close above the $45,500 level will be a sufficient argument to increase our current position in the buying direction. Similarly, in case of a clean close above the technical zone of $1,975 an ounce, we think the key to the all-time high of $2,072 will open above.

After the US stock markets finished with 1.8% gain last night, an optimistic picture is seen at the other end of the Pacific in the morning hours. While the benchmark index Tokyo stock market is traded above 0.8%, there is a horizontal course in the futures of the US stock markets.

Let’s go back to today. In the morning hours, TURKSTAT will announce inflation figures for February. The market expectation is that the monthly CPI increase will be around 4%, and with this result, the annual realization is expected to be based on 54%. Inflation reflected on the producer is expected to rise to the psychological 100% level either today or next month. On the other hand, durable goods orders can be tracked abroad with the Euro Zone services PMI and the US ISM services sector index.

We are aware of the fact that we have devoted our bulletins to ‘developments’ in the Russia-Ukraine axis in recent weeks. Although the hot war will end one day, it is obvious that the cold war will continue for a long time. It should not be forgotten that this situation will contain both risks and opportunities in itself. It is undisputed that Europe will now seek an alternative to Russian gas. If Russia’s invasion of Ukraine is considered a new turning point in world history, Germany has announced that it will seriously increase its defense spending. Resisting pressures from the United States and NATO to increase its defense budget for years, Germany has decided to allocate an additional 100 billion euros from the 2022 budget for defense spending to respond to Putin’s aggressive policy. In addition, changes are made in arms aid and energy security policies. It is necessary to underline once again that all companies and states, in micro and macro terms, should be proactive by doing their homework in order to adapt to the new world order and not be left out of the game.

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