26 October 2020 by jbchevrel
Turkey CDS was the under performer in the CEEMEA complex. It had been the case already last Thursday, when the Turkish central bank failed to deliver the rate hike that the market had expected. They instead left the key rate unchanged at 10.25% while the Bloomberg consensus was for 12%. Today Turkey CDS took another +20bp leg wider, due to the continued hawkish rhetoric of Erdogan vs France, Greece (Cyprus) and the US. Turkey CDS will have to weather a challenging geopolitical context as the tensions with the EU over the drilling activities in the Mediterranean remain high and the conflict between Azerbaijan and Armenia has added another layer of risk. A double-digit inflation rate and a widening current account deficit continue to weigh on Turkey’s fundamental picture. By contrast, Russia (+3) and South Africa (+8) CDS were relatively benign today, and displayed beta moves, rather than anything else. Not that there is nothing to worry about on these two sovereigns. South Africa’s fiscal picture has deteriorated fast this year. Russia CDS has not been moved by the recent geopolitical tensions and fears of new sanctions from the US and the EU. The uncertainty surrounding the result of the US election seems to be weighing on Russian risk, but too mild to move CDS significantly, so it’s been more moving along with beta. It is fair to say that a potential change in the US administration may mean a further deterioration in the Russia-US relationship. The question about the future of the Nord Stream 2 gas pipeline is another point of consideration.