Written Commentary
Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
Meagre data schedule has Korea Exports and US Existing Home Sales, deluge of central bank speakers; another Turkish Lira crisis and Japan auto semiconductor plant fire also in focus; Belgium & Canada debt sales
Turkey: another Erdogan wrecking ball returns focus to parlous external financing situation
US Existing Home Sales: modest setback expected after six months of gains; weather factor imparts downside risk
EVENTS PREVIEW
The week gets off to a quiet start in terms of scheduled data and events, but has the joy of yet another Turkish Lira crisis after Erdogan sacked yet another central bank chief for being too hawkish on Sunday. As noted in the week ahead below, the most intense debate of the moment should be around whether inflation pressures that are arising are merely demand bottleneck issues or a more profound loss of productive capacity, into which is thrown today’s news about the fire at Japan’s Renesas’ auto semiconductor plant, that will only serve to exacerbate an already acute sector shortage. Statistically there are little more than the overnight South Korea March 1-20 Exports data to digest ahead of US Existing Home Sales, though what the data schedule lacks is made up for by the first round of this week central bank speaker deluges. Powell tops that run as the BIS’s Central Innovation Summit gets under way, though his testimony to Congress tomorrow and Wednesday will be of greater market interest. As expected China’s 1 & 5-yr LPR rates were left unchanged overnight, and Belgium and Canada will both auction government debt. In regards to Turkey, Erdogan has again proved himself to be the Turkish Lira’s Achilles heel, and as long as he remains in office, a fat risk premium will continue to be discounted. To be sure, the rebound from the 8.4850 low vs. USD overnight underlines that yield hunters will be willing to chase the TRY, and that low was primarily due to a total lack of liquidity in overnight markets. However the key issue is that with net FX Reserves barely above $10 Bln and a colossal volume of external liabilities to refinance this year, a Balance of Payments crisis is looming, which would seem to make an IMF bail-out inevitable. In broader terms it underlines the point that rising long-term USD rates will pose a major challenge for EM countries with proportionately large external financing needs.
U.S.A. – Feb Existing Home Sales
The consensus for a 2.9% m/m fall to a 6.50 Mln SAAR pace in Existing Home Sales following six months of very strong gains, and in fact mirrors the 2.8% m/m fall in January’s Pending Home Sales, and could perhaps be weaker due to the bad weather effects seen in many other indicators, though Pending Home Sales is more likely to see an exaggerated impact. Housing remains the persistent bright spot in the US economy, though low inventories, rising mortgage rates and rising input costs are likely to present headwinds going forward.
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