The global economic wave is getting tougher
The global sales wave is hardening. Europe’s resorting to curfews against the second wave and the possibility that the additional US financial package will not be issued after the elections brought up double-bottom scenarios in growth, disrupting the global risk appetite. According to the peak it saw at the beginning of September, S&P 500 is traded 9 percent and MSCI World 7 percent below.
We have spoken before that global growth is not “V” or “U” shaped but “K” shaped. The second wave makes things even more difficult in Europe, one of the lowering legs of the “K”. Measures that increase the social distance taken in France, England, Germany, Spain, Italy and Switzerland against the epidemic and encourage them to stay at home increase the possibility of double bottom in Europe’s growth and disrupt the risk appetite.
Failure to issue the Supplemental Financial Package in the US economy, which is one of the rising legs of the “K”, is another development that disrupts the risk appetite. Until recently, markets that expected the elections to end in a Blue Wave did not care that Republicans and Democrats could not agree on the Additional Financial Package.
Things changed, however, as the prospect of a Biden win, with the Senate and the House of Representatives shared by Republicans and Democrats, was soon ahead of the elections. What has changed and perception has changed? Is the difference between Biden and Trump closing?
Not really… A few days before the US elections, Biden is still performing well with a 7 points difference. The difference has declined a little compared to 9 points. But it’s still too high. In the 2016 election that turned the markets into the opposite corner, the gap between Clinton and Trump was about half that of today.
So what’s the problem? The chances of the Democrats to take over the Senate declined slightly. In some states that we call burning and turning, the advantage of Democrats against Republicans remained at the level of statistical error with 2-3 points. If the Democratic votes, which usually come by mail, are not considered valid because of being late, we may be faced with a divided Senate and House of Representatives.
Is it the end of the world in a scenario where Biden is president but Republicans can’t take over the Senate? Of course no! However, since the expansionary Supplementary Financial Package is seen as either not or will be minimized after the elections, it is priced negatively.
All these developments Turkey may hit through two channels. that half of a double-dip scenario encountered with exports to Europe would be bad news for Turkey in the European growth. The Democrats win the election, albeit with Blue Wave, a development would increase the risk of sanctions for Turkey, albeit with Light Blue Wave.
Global risk appetite remains strong and wrong policies applied in Turkey entities that participate in the world due to rising geopolitical risks, weather hardened losing more value from the world. So MSCI Turkey in October 13, the stock market is among the most vulnerable developing with the loss of 25 percent compared to July peak.
Do not darken the neck. We are not faced with an irreversible process that is out of control. We will do what other countries faced with external shock are doing. We will try to increase the interest rates and make our money attractive again. But because we are not managing the process well, the economy will stabilize at a “higher rate, inflation and interest rate” and possibly a lower “growth path”.
