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Orient Express

24 June 2019 by jbchevrel

Turkey outperformed the other CDX EM sovereign CDS today, after the opposition party CHP’s candidate Imamoglu gained c55% of the vote in Istanbul, ahead of the President Erdogan-backed AKP candidate Yildirim. This was the re-run of the election where President Erdogan’s opponent had secured a 14k voter gap. This time the gap is much wider (c800k). While the bar is relatively high for early elections (would require MHP to break the alliance with AKP + c50 resignations within the AKP itself), it will be interesting going forward to see whether alternative centre-right political movements can gain traction in Turkey. Part of the reasons for bullish price action today are the fact that AKP didn’t dispute the vote’s results and the sentiment that Erdogan’s influence might be slightly fading. Turkey 5y CDS came tighter by c13bp (after looking tighter by more than 20bp intra-day) on the London close, vs -0.5bp/+21bp for other constituents of the CDX EM. Across other asset classes, the TRY was only slightly up (+0.2%) vs the dollar, but the BIST outperformed the rest of EM (+1.3%). On the economics side of the equation, the next milestones will surely be the May trade balance data this Friday (June 23), the June CPI on July 3, the CBRT meeting on July 25, the inflation report on July 31. Adding to that, on the geopolitical side of things, US President Trump was reportedly weighing some new sanctions on Turkey over buying Russian military systems (S400). According to ICE clearing data available on OTC Streaming, the open interest as of the end of last week was $18.32B, up c$100M from the end of the previous week, while the 5y spread came tighter by c50bp over the period.