Wall Street Breakfast: Lira Collapse

Lira collapse - The Turkish lira plunged as much as 7% overnight to a new record low near 15 to the dollar, as concerns snowball over President Erdogan's risky monetary policy. He believes in an unorthodox approach that higher rates cause inflation, rather than prevent it, but despite the beliefs the annual figure reached 21.3% alone in November. Soaring inflation has had devastating impacts on Turkey's emerging economy reliant on imports, while sharply eroding Turks' earnings and savings.Analyst commentary: "Last week's apparent relative stability of TRY was artificial and non-sustainable. Now we see the build-up pressure unfolding, driving lira weakness to the next level," Commerzbank said in a research note. "Ultimately, the CBRT needs to show the market some sign of caring about taming inflation," added Henrik Gullberg, a macro strategist at Coex Partners. "What we have seen so far is not enough to stop the rout."The latest crash was prompted by the central bank's fourth market intervention in two weeks, with the slide leaving the lira worth just half of the value at where it started the year. Under pressure from Erdogan, Turkey's central bank is also expected to cut its policy rate by another 100 basis points to 14% this week, after slashing the rate by 400 basis points since September. Late on Friday, S&P affirmed Turkey's long-term foreign currency rating at B+, but revised its outlook to negative on an uncertain policy direction.Next steps: Erdogan is expected to hold talks today with central bank governor Sahap Kavcioglu, finance minister Nureddin Nebati, as well as the heads of state-owned banks. It's uncertain where those will lead, as he has fired three central bank chiefs over the last two years due to disagreements over monetary policy. Brawls and fistfights have even broken out among lawmakers in the Turkish parliament as the opposition fight the government's handling of the economy.

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Top News Lira collapse Shutterstock The Turkish lira plunged as much as 7% overnight to a new record low near 15 to the dollar, as concerns snowball over President Erdogan's risky monetary policy. He believes in an unorthodox approach that higher rates cause inflation, rather than prevent it, but despite the beliefs the annual figure reached 21.3% alone in November. Soaring inflation has had devastating impacts on Turkey's emerging economy reliant on imports, while sharply eroding Turks' earnings and savings. Analyst commentary: "Last week's apparent relative stability of TRY was artificial and non-sustainable. Now we see the build-up pressure unfolding, driving lira weakness to the next level," Commerzbank said in a research note. "Ultimately, the CBRT needs to show the market some sign of caring about taming inflation," added Henrik Gullberg, a macro strategist at Coex Partners. "What we have seen so far is not enough to stop the rout." The latest crash was prompted by the central bank's fourth market intervention in two weeks, with the slide leaving the lira worth just half of the value at where it started the year. Under pressure from Erdogan, Turkey's central bank is also expected to cut its policy rate by another 100 basis points to 14% this week, after slashing the rate by 400 basis points since September. Late on Friday, S&P affirmed Turkey's long-term foreign currency rating at B+, but revised its outlook to negative on an uncertain policy direction. Next steps: Erdogan is expected to hold talks today with central bank governor Sahap Kavcioglu, finance minister Nureddin Nebati, as well as the heads of state-owned banks. It's uncertain where those will lead, as he has fired three central bank chiefs over the last two years due to disagreements over monetary policy. Brawls and fistfights have even broken out among lawmakers in the Turkish parliament as the opposition fight the government's handling of the economy.       Trending Tornado strike At least 30 tornados teared across six U.S. states on Friday and early Saturday morning, with some even causing paths of destruction over 200 miles long. The worst of it happened in Kentucky, where Gov. Andy Beshear said the death toll could exceed 100. The storm was all the more unusual because it came in December, when twisters are normally limited due to colder weather. Tragedy strikes: In Illinois, at least six people were confirmed dead at an Amazon (NASDAQ:AMZN) warehouse that was hit by a tornado. Another twister slammed into a candle factory in Kentucky, where 110 people were working on Friday night. Fatalities were also reported at a nursing home facility in Arkansas, while homes and businesses across the heartland were demolished and leveled. Damage will easily be in the hundreds of millions, if not $1B, said Chuck Watson, a catastrophe modeler with Enki Research. Meanwhile, President Biden has directed FEMA and other agencies to respond to the disaster after Kentucky declared a state of emergency and activated the National Guard. "The federal government will do everything - everything - it can possibly do to help," he said at a press conference, adding that he'd ask the EPA if climate change played a role in the devastation. Amazon CEO Andy Jassy: "We've been closely monitoring the terrible situation in Edwardsville, and are heartbroken over the loss of our team members. Our thoughts are with their families at this difficult time," he wrote in a tweet. "As this situation continues to evolve, I want our Edwardsville community to know we are working closely with local officials & first responders to support them." Tornado winds ripped off the roof of the Amazon facility near St. Louis, and reduced an 11-inch thick concrete wall that was longer than a football field to rubble.       Sponsored By StartEngine StartEngine's Current Funding Round Ends 12/19/2021 With a goal to help raise $10 billion by 2029, StartEngine has big plans... and they're already gaining momentum: 146% revenue growth YoY in the first half of 2021. 500,000 prospective investors on the platform Led by Howard Marks, co-founder of Activision (NASDAQ:ATVI). Launched a first-of-its-kind trading platform $400M raised for more than 500 companies. Moving into wine collections, real estate, and more Until December 19th, you can join over 30,000 other people and invest in StartEngine itself. Check it out here for more information. Central Banking Swift action? November's consumer inflation reading of +6.8% in the U.S., the highest since 1982, is reinforcing a narrative that the Federal Reserve will have to do more to combat soaring price pressures. The central bank is set to quicken its pace of tapering asset purchases, which will set the stage for an earlier interest rate hike. FOMC policymakers will meet tomorrow and Wednesday, with investors hoping to gain insight from the release of the "Summary of Economic Projections," especially the closely watched "dot-plot." Snapshot: Fed Chair Jerome Powell has already said it's time to talk about speeding up the taper by a few months during his testimony to Congress on Nov. 30. Since those comments, the jobs picture (the other side of the dual mandate) has flashed mixed signals. The number of nonfarm payrolls created last month fell far below the consensus, but the unemployment rate was better than expected (at 4.2%, approaching its pre-pandemic rate of 3.5%) and an improved labor force participation rate. "I think that their plan right now probably is three rate hikes next year, four rate hikes in 2023," said David Kelly, J.P. Morgan Asset Management chief global strategist. SGH Macro Advisors Chief U.S. Economist Tim Duy even sees a "high probability that the Fed hikes rates in March," though he doesn't expect the policymakers will pencil in that timeline on the dot-plot. "Where the Fed is now and where the Fed is in three months are two different things," he wrote in a note dated Dec. 7.

Go deeper: Investors globally are also preparing for 20 other central bank meetings this week, including the ECB, Bank of England and Bank of Japan. "The outlook of global monetary policy in transition across multiple geographies at varying speeds is a recipe for volatility, and one could argue so are increased risks around the virus," declared John Briggs, global head of desk strategy at NatWest Markets. "All the noise and cross-currents means volatility is the most likely outcome."

     

Media

Cable news reshuffle

Veteran broadcast anchor Chris Wallace is leaving Fox News (NASDAQ:FOX) following 18 years of blunt and straight-talking interviews that have been a fixture of Washington politics. He's departing the network to join upcoming streaming service CNN+ (NYSE:T), where he will host interviews "across politics, business, sports and culture." Wallace was said to have grown frustrated at the tone at Fox - specifically regarding the network's opinion side - marking the latest shakeup in the cable news world (CNN's Chris Cuomo was fired earlier this month).

Quote: "I look forward to the new freedom and flexibility streaming affords in interviewing major figures across the news landscape - and finding new ways to tell stories," Wallace said in a statement. "I want to try something new, to go beyond politics to all the things I'm interested in. I'm ready for a new adventure." Wallace has won several major broadcasting awards, including three Emmy Awards and a Peabody Award.

This is a "major loss for Fox News, no question about it," noted Howard Kurtz, host of Fox's Media Buzz. Analysts have already questioned how the Murdoch family would position Fox News during the Biden administration, with CEO Lachlan Murdoch saying the company would not pivot politically. "We don't need to go further right. We don't believe America is further right... And we are obviously not going to pivot left." Fox shares reached all-time highs this past year, rising above $40 in March and again in October, but closed Friday at the $34 level.

Thought bubble: Wallace's move comes at a time when CNN is investing heavily in its pivot to direct-to-consumer streaming. The network is planning to hire hundreds of producers, contributors and developers for CNN+, which will include a mix of live shows and longer content like documentaries. AT&T acquired CNN parent WarnerMedia (which was known as Time Warner at the time) in 2016 for $85B, though the company announced a $43B deal to merge WarnerMedia with Discovery (NASDAQ:DISCA) back in May. AT&T shares have been on a downward trend since the summer, falling more than 20% over the last six months.

     

Today's Markets

In Asia, Japan +0.7%. Hong Kong -0.2%. China +0.4%. India -0.9%.
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Ten-year Treasury Yield -1 bps to 1.48%

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