Elif Emirli Altug, PhD, CFA

TURKEY PREVIEW: June Inflation Data to Launch Long Drawn Easing By Selva B Baziki Bahar Baziki (Economist) (Bloomberg Economics) -- Turkey’s inflation problem is going to start backtracking in June. But the battle against high price gains is far from over – as the rate is likely to remain elevated in the medium term. Indeed, we expect annual inflation to remain at multiples of the central bank’s 5% target through 2026.  🖊 CPI inflation is likely to ease to 72.4% year on year in June from 75.5% in May — which was the second and likely the last major peak in Turkey’s multi-year flare up in prices following 2022’s high of 85.5%. 🖊 Part of June’s anticipated annual inflation retreat is likely to be due to temporary base effects. These contributed to May’s outsized reading. Easing road fuel gains will also play a role in the decline. 🖊 We expect favorable base effects to play a large role in short-term inflation moves – especially in July and August, when we see the annual rate tumbling by around 10 percentage points in each month. Even so, while Turkey’s inflation crisis will ease, we expect elevated price gains to remain a problem in the medium term. We estimate year-end inflation at 43%, well above the central bank’s 38% forecast and outside its 32%-42% projection band. The median expectation in the CBRT’s survey sits closer to our estimates at 43.5%. Despite easing, we expect price gains to remain at multiples of the 5% target in the coming years — 24% by end-2025 and 13% by end-2026. Our projections then see inflation hitting single digits in 2027, roughly four years after the CBRT started its aggressive tightening cycle in mid-2023. 🖊We currently see the central bank keeping the key policy rate at 50% through the third quarter of the year and then delivering 500 basis points of cuts in 4Q24. If risks to the inflation outlook, which include an escalation in the Middle East war, materialize, that may delay the expected start to rate cuts.

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Morgan Stanley Analysts Recommend Selling Turkey 5-Year CDS By Asli Kandemir (Bloomberg) -- Morgan Stanley recommends selling 5-year CDS to 217bp from 262bp currently, in a report written by analysts including Nida Iqbal and Hande Kucuk. The bank maintains bullish view on lira and expects to see positive total returns and REER gains through to end-2024 Sees USDTRY reaching 39 by mid-2025, compared with 45-46 in the forward curve Issuance should remain strong and expects CDS to compress further Stays equal-weight in equities; initiates banks coverage with Akbank and Garanti Bank overweight

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This is crazy Since last October hedge funds have pumped $24 BILLION into the #Turkish #Lira and there seems to be no signs of stopping We are witnessing the largest 'carry trade' position by hedge funds in the past 5 years Why? Turkey's interest rates have soared to 50% from 8.5% since last June after the country went through an economic overhaul Funds are performing a 'carry trade' in which they are borrowing U.S. #dollars and investing in Turkish lira In addition to betting on the currency, foreign investors have scooped up around $12.5B in lira government #bonds since the economic overhaul last June Foreign #investors now hold an astonishing 6.7% of the country’s domestic debt stock, compared with 0.6% before Turkey's May election Outside of buying stocks and options, hedge funds are notorious for investing in and out of foreign currencies to take advantage of other rates We'll keep tracking these movement for you here 🫡

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Lira Bonds Pare Gains With #Sterilization Steps: Inside Turkey By Inci Ozbek (Bloomberg) -- Turkey’s lira bonds pared gains after the #CentralBank kept a hawkish tone and said it may hold auctions to sell FX and gold as part of lira sterilization steps.  Central Bank of Turkey kept the policy rate at 50% at its July meeting on Tuesday in line with expectations and said it’s focusing attention on a build-up of lira liquidity. The MPC also gave hawkish guidance on future moves, warning that monthly #inflation “will rise temporarily” in July and vowing to maintain a tight stance until it sees a lasting slowdown in monthly price increases Later, the central bank sent a communication to lenders stating that it may hold auctions to sell FX and gold as part of lira sterilization steps

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Turkey Unemployment Still Sliding, Will Reverse in 2H24 by Selva B Baziki Tight monetary policy has yet to hit Turkey's labor market. The unemployment rate inched down to 8.5% in the seasonally adjusted series in April, from 8.6% prior. Religious festivities and good weather contributed to an earlier start to the holiday season this year, boosting services employment. That said, pockets of stress are arising as a composite measure of labor underutilization that factors in time-related underemployment, as well as the potential labor force into calculations, shot up to 27.2% in April from 24.1% in March. We see the central bank’s tight stance taking a toll on activity already - likely to show in the data for 2Q24. Given the high tourism season ahead, however, the related rise in the main unemployment rate may arrive with a slight delay after the summer.

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Can FX interventions turn into ponzi schemes? Turkish lira carry has been one of the most profitable trades of 2024 given a policy rate of 50% and a sudden bout of nominal exchange rate stability since March. Global carry is in an unwind, but the lira hasn’t budget (yet). In this blog post, I explore the merry go round of Turkiye carry inflows funding CBRT FX interventions, which is driving nominal FX stability, and encouraging more carry inflows. Sounds like the recipe for an aggressive unwind. Like most things, I could be very wrong here – BOP can be one of the most confusing parts of econ… would love to hear any thoughts to the contrary. Note: not a criticism of the CBRT, they are not claiming lira carry is risk free! Read more via the link below https://lnkd.in/ed3ticb3

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Turkey's 5-year credit default swap (CDS) rate stands at 262 basis points, while the 5-year CDS rate for Emerging Markets is at 162 basis points. For many years, Turkey's credit risk was among the best in emerging markets, but this trend has reversed in recent years. However, we are now seeing this negative gap start to change over the past three months, as discussions about a decrease in inflation and an increase in central bank reserves have begun. #Economy #Turkey #CreditRisk #EmergingMarkets #Finance #Inflation #CentralBankReserves

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Check this out on quality investing

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European Fund distribution Interesting recent analysis from EFAMA. As everyone already knows, distribution in Europe is dominated by the big banks. What really drew my attention though, was a comment from them saying "The pivotal role of banks in fund distribution within the EU cannot be overstated. They serve as primary advisers to clients seeking to diversify their savings from deposits into investment funds." Are you fu*king kidding me. The primary role of banks in Europe is to fill their pockets, flog their own products to investors and keep a stranglehold on distribution to ensure products like ETFs are kept at arms length. BLACKWATER #etfs #etf #assetmanagement #investmentmanagement #education

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Twitter Economic Sentiment Index records a new high, since 2020. Correlates quite well with UoM Consumer Sentiment. (Source: Goldman) ===============================================      WHERE TO FROM HERE ? =============================================== "Knowledge is the only Treasure that increases by sharing"... ..that is why I share Charts & Stats about: 💻 Trading / 📈 Technical Analysis / 🌍 Macros If you are interested in these topics, you can receive: 1. NEWSLETTER 📰  Join 1,800 others for my FREE "S.M.A.R.T. Trader Systems" Newsletter https://lnkd.in/eHcz-4Cd 2. NOTIFICATIONS 🔔 Join 8,000 others and click on Alex Spiroglou 🌍 + follow + 🔔 https://lnkd.in/efwd22Cz 3. EMAIL LIST 📩  Join 6,000 others in our email list  https://lnkd.in/e2EK2r8S  ===============================================

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Not a rosy outlook for equities from Fed economist Michael Smolyansky (“𝗘𝗻𝗱 𝗼𝗳 𝗮𝗻 𝗘𝗿𝗮: 𝗧𝗵𝗲 𝗖𝗼𝗺𝗶𝗻𝗴 𝗟𝗼𝗻𝗴-𝗥𝘂𝗻 𝗦𝗹𝗼���𝗱𝗼𝘄𝗻 𝗶𝗻 𝗖𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗲 𝗣𝗿𝗼𝗳𝗶𝘁 𝗚𝗿𝗼𝘄𝘁𝗵 𝗮𝗻𝗱 𝗦𝘁𝗼𝗰𝗸 𝗥𝗲𝘁𝘂𝗿𝗻𝘀” https://lnkd.in/d2jyURNf ) The paper shows how over the past three decades 𝘁𝗵𝗲 𝗱𝗲𝗰𝗹𝗶𝗻𝗲 𝗶𝗻 𝗶𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗿𝗮𝘁𝗲𝘀 𝗮𝗻𝗱 𝗰𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗲 𝘁𝗮𝘅 𝗿𝗮𝘁𝗲𝘀 𝗮𝗰𝗰𝗼𝘂𝗻𝘁𝘀 𝗳𝗼𝗿 𝘁𝗵𝗲 𝗺𝗮𝗷𝗼𝗿𝗶𝘁𝘆 𝗼𝗳 𝘁𝗵𝗲 𝗽𝗲𝗿𝗶𝗼𝗱’𝘀 𝗲𝘅𝗰𝗲𝗽𝘁𝗶𝗼𝗻𝗮𝗹 𝘀𝘁𝗼𝗰𝗸 𝗺𝗮𝗿𝗸𝗲𝘁 𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲 (~40% of the real growth in corporate profits from 1989 to 2019). In addition, 𝘁𝗵𝗲 𝗱𝗲𝗰𝗹𝗶𝗻𝗲 𝗶𝗻 𝗿𝗶𝘀𝗸-𝗳𝗿𝗲𝗲 𝗿𝗮𝘁𝗲𝘀 𝗮𝗹𝗼𝗻𝗲 𝗮𝗰𝗰𝗼𝘂𝗻𝘁𝘀 𝗳𝗼𝗿 𝗮𝗹𝗹 𝗼𝗳 𝘁𝗵𝗲 𝗲𝘅𝗽𝗮𝗻𝘀𝗶𝗼𝗻 𝗶𝗻 𝗽𝗿𝗶𝗰𝗲-𝘁𝗼-𝗲𝗮𝗿𝗻𝗶𝗻𝗴𝘀 𝗺𝘂𝗹𝘁𝗶𝗽𝗹𝗲𝘀. As that is unlikely to continue (with the ratio of US debt-to-GDP near all-time highs, another deficit-financed cut in corporate taxes does not appear likely anytime soon), significantly lower profit growth and stock returns should be expected in the future: there is a very strong case that 𝗹𝗼𝗻𝗴-𝗿𝘂𝗻 𝗽𝗿𝗼𝗳𝗶𝘁 𝗴𝗿𝗼𝘄𝘁𝗵 𝗶𝗻 𝘁𝗵𝗲 𝗳𝘂𝘁𝘂𝗿𝗲 𝘄𝗶𝗹𝗹 𝗯𝗲 𝗻𝗼 𝗵𝗶𝗴𝗵𝗲𝗿 𝘁𝗵𝗮𝗻 𝗚𝗗𝗣 𝗴𝗿𝗼𝘄𝘁𝗵. What happens next? - Other countries/regions will take the baton from the US in sustaining growth? Unlikely to be Europe, maybe Asia? But I’ve heard the argument for EMs to carry world growth so many times over the last three decades that I’m becoming a bit sceptical - AI will massively increase world productivity (kind of Internet 2.0)?

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Market & F&O Setup 📈📉 FII in index futures: (Contracts) Total Long at 57.0% vs 56.7% FII total Longs % at 48-session high Nifty: -Index consolidates above breakout level of 23,480 for 4th session Index Futures: Chane in OI: -5% Trend: Long Unwinding Index Options: 👎 Call Writing @ 23,600 Put Buying @ 23,400 Nifty Bank: -Consolidates for 3rd session around Channel Resistance Index Futures: Change in OI: -8% Trend: Long Unwinding F&O STOCKS IN FOCUS: LONG BUILDUP: 📈 Bharti Airtel Vodafone Idea Granules SHORT BUILDUP: 📉 BPCL HPCL Chambal Fertilizer #futures #options #derivatives #technicalanalysis #stockmarket #nifty #niftybank

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Delta Hedging: The Feedback Effect Moving Markets in Illiquid Conditions Delta hedging involves: Maintaining a portfolio with an option and its underlying asset. Neutralizing the overall delta (change rate of option price w.r.t. underlying asset price). Purpose: Used by traders to hedge against price movement risks in the underlying asset. Impact in illiquid markets: Delta hedging can influence the underlying asset's price due to feedback effects. Traditional models: Black-Scholes assumes option replication does not affect the underlying asset’s price. Assumption holds in highly liquid markets but fails in illiquid markets where trading impacts prices significantly. 2. Delta Hedging Strategy The delta (Δ) of an option is defined as the partial derivative of the option's value (V) with respect to the underlying asset price (S): Δ=∂S/∂V​ For example, the delta of a European put option is: Δ=N(d1)−1 3. Market Impact of Delta Hedging Collective delta hedging by many traders can move the underlying asset's market price. Impact is more pronounced in illiquid markets where large trades cause significant price changes. Creates a feedback loop: Hedging activity influences the underlying asset price. Changes in asset price affect the option price. Leads to further hedging adjustments. 3.1. Feedback Loop Consider a trader holding a short position in a European put option. As the price of the underlying asset decreases, the delta of the put option increases (becomes more negative), requiring the trader to sell more of the underlying asset to maintain a delta-neutral position. This additional selling pressure can further depress the asset price, necessitating even more selling, and so on. This self-reinforcing cycle can lead to significant price movements in the underlying asset​ 3.2. Quantitative Analysis Let's denote: Δ(S,t) as the delta of the option, q(t) as the quantity of the underlying asset held for hedging, D(t) as the demand function induced by delta hedging. The demand function D(t) can be expressed as: D(t)=αΔ(S,t)D(t) where α represents the scale of trading. The change in the underlying asset price (ΔS) due to this demand can be modeled by: ΔS=λD(t) where λ is a parameter reflecting the market's liquidity (lower λ indicates lower liquidity). As traders adjust their positions, the new price S′S'S′ becomes: S′=S+λαΔ(S,t) This new price affects the option's delta, creating a feedback loop: Δ′=∂V(S′,t)​/∂S′ kickstart your Quant Interview Prep Check out Quant Insider Stack - https://lnkd.in/gcfdUEfg A Bundle of Interview Byte, Quantopia Library, and Quant Insider Project Handbook ‘Interview Byte’ contains 500+ Interview questions (https://lnkd.in/gkqcrrKf) Quant Insider Project Handbook has 10 HFT/hedge fund industry-oriented projects(https://lnkd.in/gWBEn78U) Checkout our course ML for Finance - Designed by Industry veterans, working at Wallstreet - https://lnkd.in/gtJDWcus

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BNY Cautions Against Excessive Optimism in Turkish Market Regional conflict could shake Turkey’s economic stability: BNY Global investors have touted attractive lira and bond trade By Tania Chen (Bloomberg) -- BNY is warning that the influx of foreign capital into #Turkish assets may be overdone, with investors likely ignoring pitfalls that could prompt a reversal. Overseas investors have poured billions of dollars into Turkish assets this year, many banking on the #currency appreciating. However, sky-high borrowing costs and geopolitical tensions pose substantial threats to this crowded currency trade, according to Robert Savage, the bank’s head of markets and strategy. “I’m not sure that it can sustain 50% interest rates,” Savage said. “People are long #bonds, they’re long #equities and they’re long the currency. It’s a trifecta.” Bank of America strategists have calculated that positioning in Turkish lira forwards could now exceed $20 billion. Deutsche Bank, which called Turkey the “trade of 2024”, and Pictet Asset Management are among those bullish on Turkish debt and currency. Foreign holdings of local debt have climbed to more than $12 billion from less than $1 billion a year ago, according to data compiled by Bloomberg. State-run banks have helped to steady lira’s depreciation to below the monthly inflation rate, allowing the currency to appreciate more than 11% in real terms this year.

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Corbenic Capital raising estimate of US PCE-PI core inflation through March 2025 from 3.3% to 3.8% - two standard deviations outside the long term normal range of core inflation. We expected the index values to come out above consensus, but the figures exceeded our more sanguine expectations. On an annualized month-over-month basis, inflation is accelerating, rising from 3.2% in February to 3.9% last month. At this point we have seen three monthly consecutive trend-breaking inflation figures for the data dependent Fed to consider. What is going to stop the natural rate hike decision is that the December 2023 y-o-y number came into the long term 1.1% - 2.9% normal range of core inflation, and under normal conditions the Fed could and should cut rates, if there is confidence in the trend. Today the Fed sees what we see and this indicates that for the fourth month in a row we see in-range inflation, but projections say it is temporary and, come end of July, the June estimate will go back out of range at 3.0%. The Fed will not dare to be trapped in that situation, having cut rates. The damned-if-you-do, damned-if-you-don't Fed dilemma is that it is equally difficult to trust the inflation rebound forecasts until they materialize, and so they risk waiting too long to stop that undesired trend. Should they then wait to have three consecutive readings above 2.9% before hiking? That would take us to the end of September publication of August core inflation at 3.4%, and so a hike in the November meeting, just days after the US Presidential elections. As usual, we suggest what the Fed SHOULD do, which is raising rates by 100 bps in the May meeting to 6.25% - 6.50%, followed by quarterly 25bps hikes through Q1 2025. Fed internal models will suggest that this is by far the top of the range of possible required levels of Fed funds to stop price instability. Taylor First Difference, used under the Fischer vice presidency, will indicate Q1 2025 rate at 9.5% - 9.75% using OUR projections of core PCE-PI, UST10, GDP and unemployment. Looking at capital markets, we are fairly priced at around 5085 (current read 5083) on the S&P 500 at the end of April. We expect a small drop to just under 5080 at end of May, and a -15% drop through March 2025 to about 4320 on lower real earnings and higher interest rates. We see UST 10-year yields at the top of the long term normal range 5.6% at end of April 2025, almost 100 bps up from today's level. Bond values will drop significantly, but not in the next three months. For seasonal reasons, we expect UST 10-year yields to remain 4.5% through July and getting back to 4.7% in September, ending the year at about 4.8%. The Treasuries market will continue screaming "something will break". There is no new recommendation from us than going to cash, continuing taking 5%+ from the US Treasury, and a currency premium if your home currency is not USD. #usa #election2024 #fed #recessionrisk #inflation #coreinflation

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Family Offices: HOW to invest in commodities: A Simplified Guide >> Commodity Investments: * Instruments, * Vehicles, * Pros & Cons for Family Office Investors: 1. Direct: •  Physical Commodities: Gold, silver, oil. Direct exposure but storage, insurance & security challenges. 2. Futures Contracts: •  Commodity Derivatives: Listed futures & options contracts on CME & ICE. Pros: High liquidity, leverage, direct price exposure. Cons: Requires sophisticated understanding, high volatility. 3. ETFs and ETNs: •  ETFs: Funds tracking commodities or baskets, e.g. SPDR Gold Shares (GLD) & iShares GSCI (GSG). Pros: Easy access, liquidity. Cons: Mgmt fees, potential tracking errors. •  ETNs: Debt instruments tracking commodity indices. Pros: Tax-efficient, no storage. Cons: Credit risk, potential tracking errors. 4. Mutual Funds: •  Commodity Mutual Funds: Managed funds in commodities. Pros: Professional management, diversified exposure. Cons: Higher fees, less control over specific investments. 5. Commodity Stocks & Indices: •  Commodity-Linked Stocks: Listed producers, distributors, miners. Pros: Potential capital appreciation, dividends. Cons: Indirect exposure, company-specific risks. •  Indices: Tracking commodity companies, e.g. S&P GSCI. Pros: Broad exposure, diversification. Cons: Indirect exposure, management fees. 6. Hedge Funds/CTAs & Private Equity: •  Commodity Hedge Funds: Sophisticated strategies, leverage & derivatives. Pros: Top managers, potential high returns. Cons: High fees, high min. investments. •  Private Equity: Private companies in the commodity sector. Pros: Significant returns, active management. Cons: Illiquidity, high min. investments, long horizons. 6. Structured Products: •  Commodity-Linked Notes: Structured debt instruments, returns on commodity performance. Pros: Customizable, potential high returns. Cons: Complexity, credit risk, potential loss. 7. Real Assets: •  Farmland & Timberland: Direct investment in agricultural land & forests. Pros: Tangible assets, inflation hedge. Cons: Illiquidity, management requirements. 8. Pooled Investment Vehicles: •  Commodity Pools: Managed funds pooling capital to trade commodity futures. Pros: Professional mgmt., diversified exposure. Cons: Fees, high potential volatility. 9. Digital and Cryptocurrencies: •  Tokenized Commodities: Digital tokens - ownership on blockchain. Pros: Easy transfer, fractional ownership, transparency. Cons: Regulatory uncertainty, market volatility. Key Considerations for Family Offices: •  Risk Management: Understand price volatility, geopolitical factors, regulatory changes. •  Due Diligence: Research & consultants. •  Diversification: Balanced portfolio w/ broad sector exposure. •  Liquidity Needs: Align cash flow requirements & investment horizon. •  Tax Implications: Tax treatment & structuring for efficiency. NOTE: Complex topic covered in brief. Commodity #investment involves risk & is not suitable for all #FamilyOffice s & Investors.

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