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Is Turkey Back On The Menu?

01 December 2016 by pdonnat

Since the attempted coup in Turkey this summer, everything Turkish has been under pressure in financial markets. The lira has dropped almost 20% against the US dollar and it is the worst performing emerging currency, safe for the Argentine and the Mexican pesos. In November alone, the fall amounted to 10%. Turkey’s 5-year risk premium has followed a similar path and is back to its widest level of the year at 308bps, after touching 210bps in early July. During today’s session, it was pushed another 16bps wider on the back of the jump in oil price. The latter weighted on investors’ sentiment because Turkey is a net oil importer and it will increase the country’s import bill. It added to uncertainties due to a combination of weakening economic indicators and a volatile political situation following the widening crackdown after July’s failed coup. Meanwhile, the broader credit market was in wait and see mode before the all-important results of the Italian referendum on Sunday. The relief brought by higher oil prices to the energy sector was enough to offset the resumption of the interest rate upward trajectory, and credit indices were roughly unchanged across the board.