While the reaction output in Borsa Istanbul continued with a fluctuating course, there was an increase of approximately 10 percent last week. The developments in the Fed and the USA were on the agenda of foreign markets. On the other hand, there was an increase in the ounce price of gold, primarily due to the Omikron variant. However, due to the increase in US bond yields, the gold price fell below $1,800.
Here is this week’s article by Hürriyet newspaper writer Zeynel Balcı. ..
Borsa İstanbul started the new year well. There was a slight increase in exchange rates, while a premium of about 10 percent was seen last week. Although the uptrend of the dollar weakened, the stock market was preserved. On the other hand, the rise in bonds and bills (short, long) interest rates continued. Regarding the rising interest rates despite the CBRT interest rate cuts, MUSIAD Chairman Mahmut Asmalı said, “Unfortunately, the 14 percent policy rate is not reflected in the real sector. Loan interest rates are currently at the level of 30 percent. Unfortunately, deposit rates have also increased. As such, if the deposit interest rate rises to such a degree, the loan rates also increase.” The opposite direction of the capital and money markets, which are alternatives to each other, is accepted as the normal course of the market. However, that outlook has turned to the way it moves in the same direction in recent months. At this point, it will be necessary to talk about the effects of inflation. Investors seem to prefer stocks, albeit partially, as a hedge against high inflation, alongside investment instruments such as foreign currency and real estate.
The increase in interest rates in the market will have to be explained by the inflation that is above the expectations. However, if we look at the latest outlook, both deposit and bond interest rates seem to be below inflation. (minus interest) At this stage, a situation such as the upward perception of the stock market in the dollar and the upward perception of the inflationary stock market may not be correct in general terms. The first effect is that inflation causes an expansion on company profitability and turnover. On a larger scale, the repercussions of high inflation such as erosion in working capital, weakening of purchasing power and financing costs due to high interest rates are known. The mismatch between money and capital markets is sometimes seen in foreign markets as well.
FED IS GETTING FARN
The agenda of foreign markets last week was again the developments originating from the US Federal Reserve (Fed) and the USA. In the Fed minutes of the last meeting, it was seen that the members were of the opinion that “The Omicron variant will not change the recovery path of the economy, but the supply shortages may last longer than expected, the balance sheet may shrink faster than seen in the last cycle, and the possibility of an interest rate hike earlier than expected”. In this respect, the Fed minutes were found to be “hawkish”. However, this process started with the November meeting. Also, St. Louis Fed President James Bullard reported that the Fed may raise interest rates in March and is now in a good position to take more aggressive action against inflation if needed. With the announcement of the minutes, profit sales were seen in the US stock markets and in Europe. However, the sales did not gain much depth and the exit trends were preserved in the stock markets. On the other hand, the upward trend in the US 10-year bond interest rate, which is seen as an important reference by the markets, gained momentum and reached its highest level since March 30. The appreciation of the US dollar continues, although it loses some momentum.
LOSS OF VALUE IN THE EURO
The remarkable issue was that the Euro/Dollar parity remained above the 1.13 level and the depreciation of the Euro stopped. European Central Bank President Lagarde said after the meeting last month, “A rate hike in 2022 is unlikely.” On the other hand, three rate hikes are expected from the Fed this year and three in 2023. It seems that there were expectations for the continuation of the depreciation in the Euro. Considering what could be the reason for this, it can be assumed that the inflation rate in Germany has reached the highest level of the last 30 years with 5.3 percent and that the low interest rate environment cannot be maintained very well under these conditions. It is also known as the Fed engine in global financial markets. It is an important reference for other leading central banks of the world and it has been experienced many times that its values follow it. The Fed’s policy of monetary tightening this year, the external financing gap, including Turkey, is a negative situation for countries. In a way, it means more expensive money. Considering that the stock markets are fed with cheap and plentiful money after the pandemic, it is clear that there will be no desired table for the stock markets.
According to the CBRT data, in Borsa Istanbul during the week of 27-31 December; While foreign investors sold 231 million dollars in stocks, they bought 41 million dollars in bonds and bonds (GDDS). In equities, their sales in the previous week were $569 million. They have been seen on the sell side for the last five weeks and their shares in Borsa Istanbul have been pulled up to 40.48 percent. While this situation was recorded as the lowest level since 2004, the stocks total decreased to 18.4 billion dollars. On the other hand, according to the CBRT data for the same week, there was a decrease of 1.9 billion dollars in foreign currency deposits in banks compared to the previous week. However, there is an increase of approximately 1 billion dollars in foreign currency deposits of real persons. The CBRT’s gross reserves increased slightly to over 111 billion dollars. After the tension in December, it is seen that a slight recovery trend was entered in the last week of the year. After the exchange rate guaranteed deposit package announced on December 20, foreign exchange data began to be watched more closely.
RISE IN THE STOCK EXCHANGE
The reaction output in the stock market continues with a fluctuating course. While the first support points are seen as 2.000-1.950, the continuation of the reaction above this level can be expected. Otherwise, next supports are at 1.850-1.800 and 1.720. Initial resistances are found at 2.070 and 2.150 levels. 2,150 is more important. Next resistors are 2.250 and 2.400. Although the uptrend in the index maintains its strength, selling attempts can be seen at the resistance levels.
CONTINUES UNDER PRESSURE
There was a reaction and exit in the ounce price of gold. The increase in cases in the Omikron variant reminded us of the need for a safe haven and high inflation was the reason for this exit. However, the rise in US bond yields and the ongoing appreciation of the US dollar brought the gold price back below $1,800. In addition, although the number of cases in the pandemic dropped, it was considered important that the effects were weak. The increase in the gram/TL price of gold in domestic markets is related to the dollar/TL rate.
US EMPLOYMENT DATA IS WEAK
USA December non-farm employment increase was announced as 199 thousand while expected 400 thousand. Last month it was 210. In addition, the unemployment rate was 3.9 percent (expected 4.1, previous 4.2), while average hourly earnings increased by 0.6 percent monthly (previously 0.3, forecast 0.4) and increased by 4.7 percent annually. By giving details, we mean that employment growth has weakened, but earnings have increased significantly. The increase in earnings is one of the signs that the recovery in the economy continues. Of course, the effect of inflation should also be taken into account in the increase in earnings. It is difficult for these data to influence the Fed’s monetary policy. If it was well below or above the expectations, the possibility of a change would be discussed.
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