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Thread: Turkey Blames JPMorgan For Lira Crash, Launches Probe; Erdogan Threatens "Manipulators"

  1. #1

    Turkey Blames JPMorgan For Lira Crash, Launches Probe; Erdogan Threatens "Manipulators"

    On Friday, when the Turkish lira suddenly cracked, and suffered its biggest one-day drop since last summer's crisis as public attention turned to the sudden plunge in the nation's reserves and the bank's unexpected 150bps equivalent tightening in policy, JPMorgan FX strategists poured gasoline on the fire when - as the lira was sliding - they published a note recommending a 5.90 target on the USDTRY.
    As JPM analysts Anezka Christovova and Saad Siddiqui wrote on Friday morning recommending a lira short, Turkish authorities would likely "attach less significance to lira stability and reduce FX reserve support" for the currency following March 31 elections, resulting in further lira weakness, adding that the pace at which Turkey’s burning net foreign reserves is “unsustainable” and therefore “FX reserve support will abate post local elections on March 31, which could lead to USDTRY trading substantially higher."
    Despite (or perhaps due to) our sarcastic comment....
    JPMorgan Recommends Going Long USD/TRY; Target at 5.90

    ugh, time to go short
    — zerohedge (@zerohedge) March 22, 2019
    .... JPM's note only added impetus to the selloff, and by the end of the day, the TRY has crashed almost 400 pips, closing 5.5% lower on the day as it almost hit JPM's target, and sparking fresh panic that Turkey's economy is once again on the edge.

    Predictably, it also sparked Erdoga's fury, with Turkey’s banking and capital markets regulators opening separate investigations into JPMorgan Chase the bank's recommendation to short the lira.
    Desperate to create a scapegoat for the sudden plunge in the currency, which as it turned out had since last summer been artificially propped up by local banks (while the central bank pretended not to intervene), Turkey delighted at the opportunity to blame the plunge in the lira, which is only just now restarting, on JPMorgan. As a result, the banking regulator BRSA said the JPMorgan analysts’ note had “misguiding and manipulative” content that resulted in volatility in markets and hurt the reputation of Turkish banks, according to state news agency Anadolu. The Capital Markets Board began its own investigation on similar grounds, according to a statement on its website.
    According to Bloomberg, the disclosure of the two probes almost simultaneously suggested coordination between the regulators one day after the Turkish currency plunged as much as 6.5% against the dollar, leading retreats among emerging market peers. Panicked by the plunge, Turkey’s central bank was forced to announce a surprise tightening action in the middle of the day to stem the lira’s slump but it only made the selloff worse.
    And in keeping with some quite bizarre banana republic measures, the banking regulator began another investigation against banks that manipulated their own clients to buy foreign currencies without naming the financial institutions that are targeted, Anadolu reported.
    Finally just to make sure that the public knew the lira's crash was due to evil "manipulators", on Sundan Erdogan made it clear that anyone caught selling the lira would probably be thrown in jail...

    • ERDOGAN: MANIPULATORS TO PAY HEAVY PRICE AFTER ELECTIONS

    ... which in Turkey is not just a figure of speech but virtually an assured outcome. Meanwhile, the real question is how have more investors not realized that Turkey was and remains a quasi dictatorship, one where the rule of law will be changed and trampled any time it suits the "executive president", whose power will become even greater after next week's elections, and why is the lira not far lower than where it is now.


    https://www.zerohedge.com/news/2019-...s-manipulators
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

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    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

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  3. #2
    Just days after Turkish president Erdogan vowed to crackdown on currency speculators and launched a probe against JPMorgan for its Friday reco to short the country's currency to 5.90 vs the dollar, on Tuesday Turkish authorities took their vendetta against short sellers to never before seen levels, when taking a page of the Chinese currency manipulation playbook, they made it virtually impossible for foreign investors to short the lira.
    The overnight swap rate soared more than ten-fold increase over the last two sessions to more than 300%, the highest spike on record going back to the nation’s 2001 financial crisis according to Bloomberg, as offshore funds clamoring to close out long-lira positions failed to find counterparties and the cost of a lira short exploded. Think Volkswagen short squeeze but for a currency.

    The sudden evaporation of liquidity was partly a result of restrictions imposed by the Banking Regulation and Supervision Agency, or BDDK, imposed during the market rout last summer, which capped the amount of lira that Turkish banks can lend offshore to 25 percent of equity.


    But, as Bloomberg notes, the situation escalated and a chill descended on the financial sector in Turkey this week after authorities launched investigations into JPMorgan and other banks for allegedly stoking a lira rout on Friday. President Recep Tayyip Erdogan warned on Sunday that bankers deemed responsible for speculating against the currency would be punished.
    Traders who piled into short-term swaps to scoop up the lira’s juicy 24 percent yield over the past months were caught off guard by the currency’s violent depreciation at the end of last week and rushed for the exit at the same time. As a result, lira liquidity evaporated, sending rates soaring.
    As a result of the forced squeeze, shortly after 2am EDT, the lira suddenly flash smashed more than 2% in a matter of minutes, the latest abrupt move in a jolt of volatility that has taken hold of Turkey’s currency, as the latest round of shorts capitulated.
    Between 2.26am and 2.33am EDT, the lira spiked to 5.474 against the US dollar, from 5.5592, a rise of some 2. And while much of the sharp gains fizzled over the next hour, shorts have continued to cover their positions as shorting costs remain unsustainable.

    As the FT notes, the lira’s moves on Tuesday come during a critical time politically, with local elections on Sunday; in order to avoid a sharp devaluation of the currency ahead of the elections, on Monday Turkey’s central bank unveiled a series of operations that helped to prop up the lira, while analysts noted that traders were seeing domestic banks selling large quantities of foreign currency in an apparent attempt to lift the lira.


    https://www.zerohedge.com/news/2019-...-short-squeeze
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankind…it’s people I can’t stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  4. #3
    The Turkish lira resumed its plunge on Thursday following a sharp rebound on Tuesday when Turkish authorities unleashed an unprecedented assault on lira shorts, helping push the TRY briefly higher ahead of regional elections, after a disappointing reading on the central bank's net FX reserves stoked fears that the country was even closer to a full-blown currency crisis than investors had feared, while local accounts continued to accumulate foreign currency after overnight swaps on the Turkish Lira collapsed to just 40% from a historic high around 1,338% on Tuesday.

    After nearly a week of chaos that one trader described as unprecedented in his two decades in the market ("I've never seen a move like this in the 21 years I've been watching the market"), it appears President Erdogan has relented, and following a vocal outcry from the international community which was effectively trapped in lira positions, both long and short, after overnight swaps hit rates well above 1,000%, on Tuesday the swap plunged as low as 18.5%, in line with recent historical prints, and an indication that after doing everything in its power to squeeze shorts (and longs) the central bank appears to have capitulated.

    As we reported previously, bankers and analysts at large international banks reported that Turkish lenders appeared unable or unwilling to provide lira in exchange for currency this week, in an attempt to prevent short selling. While Turkey’s banking association (TBB) on Wednesday night denied claims that the country’s lenders had been limiting or halting sales of lira to foreign banks, one London-based analyst told the FT on Tuesday that Turkish banks told him they had been ordered “not to lend even a single lira to foreign counterparties” That squeeze sent the cost of borrowing lira soaring for foreign banks and hedge funds, although as shown above, it has since tumbled.
    Meanwhile, the underlying pressures facing Turkey accelerated, and on Thursday data showed another dizzying drop in Turkey's foreign exchange reserves brought the total decline for the first three weeks of March to 45.1 billion lira, or about $10 billion. According to FT calculations, Turkey has now burnt through at least a third of its foreign reserves this month in an effort to stem a plunge in the lira ahead of local elections at the weekend, putting the country on path to a full-blown currency and funding crisis. According to the central bank, reserves now stood at about $24.7 billion, down from $28.5 billion a week earlier, a 13% drop in one week.

    The latest currency sell-off added to deepening turmoil on Turkish financial markets, which have been in flux for almost a week in a deja vu of last summer’s crisis that sent the lira tumbling to record lows, with lasting effects on the economy.
    In a push to reassure the market, Central bank governor Murat Cetinkaya told the state-run Anadolu news agency that net foreign-currency reserves had risen in the final week of the month, rising by $2.4 billion during the past week, although this could have been due to a simple accounting trick: on Thursday, the Turkish central bank raised the limit on Turkish lenders’ FX-lira swaps with the monetary policy authority. The limit was raised to 30% of so-called FX Markets Transaction Limits determined by the CBRT for commercial lenders from 20%. The increase to the swaps limits comes after the central bank raised the maximum amount to 20% from 10% on Monday and was made in an attempt to increase its FX reserves, at least optically.
    What is even more concerning than the collapse in reserves, however, is that even locals now appear to have lost faith in a currency which the government is forced to defend at any cost - literally - and on Thursday the Lira fell 5% to 5.5914 per dollar amid a sell-off that’s roiling the nation’s markets, as the very same measures designed to deter short-sellers from selling the currency before municipal elections on Sunday achieved the opposite outcome and spooked investors, both foreign and domestic.
    According to a trader quoted by Bloomberg, Turkish investors bought an estimated $3.5 billion worth so far this week as locals have bought at least $1 billion a day. As a result, the latest central bank data reveals that Turkish investors now hold a record $176 billion worth of hard currency after buying around $25 billion since early September.
    Meanwhile, as Erdogan has focused on the currency, other market indicators are screaming full-blown crisis and on Thursday, Turkey’s five-year credit default swaps widened for an eighth day to 462, the highest since September, while the yield on the nation’s benchmark 10-year lira bond jumped 91bps to over 19%. As Bloomberg notes, the cost of protection on Turkish sovereign notes has jumped above that for Iraq, Greece, Angola and Pakistan. Governments with costlier CDS include Ukraine, Argentina and Lebanon... for now. The turnaround in market perceptions for Turkey was especially striking because its CDS had been calmly declining even as the economy sank into recession. It wasn't until recent fears about the plunge in reserves, that the CDS rout accelerated. If only assumes the historical correlation holds, the Turkish Lira will soon tumble to about 6.00 vs the dollar.

    So with Turkey now once again in a full-blown financial crisis and this time with the added kicker of its reserves dwindling to dangerous levels yesterday's quasi capital controls notwithstanding, traders' attention turns to what happens next week after the local elections are out of the way.
    For some idea of how much the Turkish lira may weaken next week, Bloomberg's Mark Cudmore says to check out the 1 week USD/TRY implied volatility, which has exploded above 48% from 9.4% a week ago:

    The expectation in the market is that offshore lira liquidity will be relaxed after the weekend elections, resulting in FX swap rates collapsing and enabling trapped lira longs to exit their positions. In fact, it appears that this has already happened, and the selling in the lira has resumed.
    Finally, confirming that Erdogan has already lost the war with "evil speculators", on Thursday the Turkish executive president made it clear that he sees nothing wrong with his economy, and instead the fluctuations in the exchange rate are due to “operations by the U.S. and the West to corner Turkey" (perhaps headed by JPMorgan):

    • ERDOGAN SAYS LIRA FLUCTUATIONS ABOUT OPERATION TO CORNER TURKEY
    • ERDOGAN: THE REAL PROBLEM IS INTEREST RATES, I'M AN ECONOMIST

    Adding to the comedy, the president said that a "cornering operation targeting foreign exchange and interest rates were foiled", ignoring to add that as a result of this operation, the last trace of confidence investors may have had in his increasingly banana republic may have now evaporated.
    And while Erdogan also said that speculators should be tamed, the greatest worry for lira bulls should be that Erdogan is once again also targeting high interest rates as the source of the country's woes, saying that "they", i.e. the central bank, "have to cut interest rates or the inflation problem will carry on."
    Of course, whatever Erdogan wants, Erdogan gets so as soon as the local elections are over, expect a coordinated attack by the Turkish executive branch on the central bank of the country which is now mired in a deep recession where prices are soaring, urging for much lower rates, which in turn will soon send the lira plunging to new all time lows.

    https://www.zerohedge.com/news/2019-...third-reserves
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankind…it’s people I can’t stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  5. #4
    The collapse in the Turkish lira is accelerating this morning, with the USDTRY rising above 5.80 for the first time since last October and CDS pushing to September highs, as the Turkish economy continues to slide ever deeper into recession, with the country on Monday reporting that a whopping 366,000 people became unemployed in the last month, sending the country's jobless rate to the highest level in a decade.
    With Ankara trapped, unwilling to let the lira devalue on fears of capital outflows even as inflation surges while the economy is urgently in need of a weaker currency, unemployment rose far more than forecast, rising to 14.7% in January - the highest since 2009...

    ... from 13.5% a month earlier, according to Turkstat data; the number of people without jobs has reached 4.7 million people, with youth unemployment jumping to 26.7%, the highest on record.

    As Bloomberg summarizes "the severity of the job losses despite a last-ditch spending blitz by the government underscores the economic challenges facing Turkey after it entered its first recession in a decade following a currency rout last year that touched off inflation."
    The most recent dismal economic data comes at a time when Erdogan's undisputed control over Turkey appears to be slipping following the recent local elections, where many of the municipalities won by the opposition from the ruling party were those where unemployment is running in double digits, official data show. As such, the political headache for the "executive president" is only set to grow as the country finds itself deeper and deeper in what is rapidly developing as a full-blown economic depression.
    Meanwhile, investors were also concerned by ongoing speculation that the ruling AKP will challenge the Istanbul election outcome which saw Turkey's most important city flip control to the opposition, after Erdogan’s candidate lost the mayoral race in Turkey’s largest city to Ekrem Imamoglu, a blow for Islamists who had controlled Istanbul since 1994. “We are going to ask for fresh elections in Istanbul by using our right to make an extraordinary objection,” said Ali Ihsan Yavuz, a deputy head of the AKP.
    Erdogan’s refusal to concede defeat in Turkey’s commercial hub has been condemned by political opponents as an attack on Turkey’s democratic foundations. Among the vocal critics of the AKP’s reaction to losses at the ballot box was Mustafa Sonmez, an economist known for opposing the government’s policies.
    Sonmez was detained on Sunday and later released after being questioned largely over his tweets over his tweets following the vote, according to his lawyer, Husniye Aydin. In his latest posts on Twitter, Sonmez criticized authorities for not recognizing the opposition’s candidate as the winner of Istanbul’s mayoral race.
    Making matters worse for Lira bulls, there is little hope for any near-term turnaround: “The rise in unemployment will continue - albeit at a slowing pace,” said Muammer Komurcuoglu, an Istanbul-based economist at IS Investment. “A sharp monthly deterioration in job creation continues to take place across all the sub-sectors. We are seeing very clearly the impact of the economic slowdown on unemployment.”
    But beside the collapsing Turkish economy, which was to be largely expected following last summer's financial crisis, what has mostly spooked investors is that even as Turkey rolled out a recapitalization plan for state banks, the program unveiled by Treasury & Finance Minister Berat Albayrak last week has underwhelmed investors.
    In fact, as Axios reports, Turkish Finance Minister Berat Albayrak - Erdogan's son-in-law who replaced 2 highly respected ministers, despite having virtually no qualifications - held a closed-door meeting with hundreds of investors during the IMF-World Bank meetings in Washington last week, "and some who attended called it the worst they've ever had with a high-ranking government official."
    "It was an absolute $#@! show," one emerging market fund manager who attended the meeting told Axios. "I've literally never seen someone from an administration that unprepared," another investor said.
    And, as Axios correctly notes, the disastrous meetings "could not have come at a worse time for Turkey. Investors are growing more anxious as the country heads toward recession and President Recep Tayyip Erdogan is seeing his popularity erode."
    Incidentally, what this means is that starting tomorrow, Axios will most likely be banned in Turkey.
    Meanwhile, as Turkey faces growing headwinds both domestically, as the economy slides deeper into recession, and internationally where critical foreign capital is increasingly diverting to other emerging markets, locals are accelerating their shifting toward conducting business in hard currencies such as dollars and euros, and away from the Turkish lira.


    More at: https://www.zerohedge.com/news/2019-...vestor-meeting
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankind…it’s people I can’t stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  6. #5
    Three weeks ago, when Turkey was scrambling to defend the lira ahead of local municipal elections, a potentially destabilizing event which saw significant selling of the currency (and which ended up badly for Erdogan's ruling AKP party, which lost control of the two most important cities, Ankara and Istanbul), we reported that "the Turkish central bank had burnt through at least a third of its foreign reserves in March in an effort to stem a plunge in the lira", in a repeat of the crisis that engulfed the lira last summer and triggered a blast of inflation and the first recession in a decade, and was "putting the country on path to a full-blown currency and funding crisis."
    And despite what was a clear, continued central bank defense of the Turkish lira since then, Turkey's official reserves actually appeared to rise, in what was meant to telegraph confidence in the currency and give the impression that the lira was stable without continued central bank support.
    There was just one problem: the central bank appears to have been if not lying, then grossly misrepresenting the true state of the country's foreign reserves .
    As it turns out, Turkey has been pulling a financial trick popularized by China's PBOC for the past several years, and according to the FT, the country's central bank was propping up its foreign currency reserves with billions of dollars of short-term borrowed money, "raising fears among analysts and investors that the country is overstating its ability to defend itself in a fresh lira crisis."
    After tumbling from a recent high of $34 billion to $25 billion at the end of March, Turkey reported that the net foreign reserves held by the central bank stood at $28.1 billion in early April — a sum which the FT notes was already believed to be inadequate because of Turkey’s heavy need for dollars to cover debt and foreign trade. But what the Financial Times uncovered is that this total was "enhanced" by a surge in the use of swaps, or short-term borrowings, since March 25. Stripping those swaps out, the total is an alarmingly low $16 billion, an amount which could be depleted in just months, if not weeks, especially if the news of the CB's plunging reserves creates a self-fulfilling prophecy in which lira holders rush to convert their currency before the central banks runs out of dollars.
    The chart below shows two sets of numbers: Turkey's true net foreign reserves, and the number that the central bank had used for public consumption, which includes the nominal amount of swaps.

    Confirming the FT's analysis, a former senior official at Turkey’s central bank, who did not wish to be named (as it would mean an instant prison sentence by the country's "executive president"), said the extra dollars had been borrowed, not earned. "This is not an orthodox [approach to] central bank reserve build-up."


    More at: https://www.zerohedge.com/news/2019-...x-reserves-100
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankind…it’s people I can’t stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment



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