Daily Update: February 4, 2022

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Start each business day with our analyzes of the most pressing developments affecting the markets today, along with a curated selection of our latest and most important news on the global economy.

The Turkish lira continues to fall, inflation in the country has soared to its highest level in 20 years and Turkey’s macroeconomic trajectory remains uncertain.

Over the past year, a currency crisis spurred by multiple interest rate cuts despite mounting inflationary pressures has caused the Turkish lira to fall 44% of its value against the US dollar. The Central Bank of the Republic of Turkey cut its benchmark rate by a collective 5 percentage points based on Turkish President Recep Tayyip Erdogan’s belief that high interest rates lead to higher inflation. S&P Global Ratings has placed its Long-term “B+” ratings on Turkey with negative outlook in December in response to the worsening situation. President Erdogan’s introduction of several economic policy measures in recent weeks, supporting higher minimum wages and an exchange-protected currency deposit scheme, has stabilized conditions in the country.

In January, the lira stood at around 13.5 to the US dollar. Today, after inflation rose 11.1% month-on-month in January, pushing Turkey’s annual figure to 48.7%, S&P Global Ratings expects annual inflation to top 50% for most of 2022.

“Inflation is almost double the previous peak in October 2018 following an equally large depreciation of the Turkish lira, which we believe is largely due to domestic politics. currency depreciation on domestic prices appears to have been faster and stronger than before amid rising inflation expectations and deeply negative real interest rates,” S&P Global Ratings said in a statement. economic study on the country published yesterday. “Turkey as a whole the macroeconomic trajectory remains highly uncertain amid a lack of clarity over its economic policy stance…Assuming policy rates remain at their current levels, a likely scenario would be real appreciation via high inflation, while in nominal terms the value of the lira could remain relatively stable for some time. during, before resuming a gradual slide.

S&P Global Ratings predicts moderate growth for the Turkish economy of 3.7% this year, but acknowledged that “radically different scenarios for the pound, interest rates and ultimately growth are possible” because of the lack of clarity on Turkey’s political orientation.

The depreciation of the Turkish Lira and inflation have hurt almost every aspect of the country’s economy. Turkey commodity playersfrom private wheat importers at polymer market players, suffered deteriorating operating conditions, according to S&P Global Platts. In addition, Turkish banks suffered from curb consumer creditany further deterioration in asset qualityand pressures on the repayment capacity of corporate borrowers debt denominated in foreign currency. Turkish banks are unlikely to see a significant recovery in the value of their shares in the short term, after a year of poor performance. Five of the Turkish banks were among the worst performing banking stocks in Europe in 2021, according to an S&P Global Market Intelligence analysis.

Unlike Turkey’s central bank, most Western monetary policymakers are looking to raise interest rates this year to combat record inflation. the The US Federal Reserve has clarified on January 26 that expansive U.S. growth, a strong labor market and high inflation will lead to the most aggressive tightening of central bank monetary policy since the 1990s. S&P Global Economics forecasts that the Fed raise rates by 25 basis points at least three times this yearfollowed by five more increases through 2024. Overall, emerging market economies well enough positioned to weather the weather upcoming Fed policy changes.

Today is Friday, February 4, 2022and here is today’s essential intelligence.

Economy


Fed inflation conundrum sheds light on U.S. community bank outlook

Community bank margins will increase over the next few years as the Fed raises short-term interest rates and yields on earning assets rise faster than deposit costs. Normalization of credit trends in 2022 resulting from lack of pandemic relief efforts and rising labor costs will create difficult year-over-year comparisons for community bank earnings in 2022, but margins will increase slightly, then increase much more the following year. While margins will not return to pre-pandemic levels for the foreseeable future due to the abundance of excess liquidity, the expansion in 2023 is expected to help boost earnings by nearly 8% from 2022 levels. .

—Read the full article from S&P Global Market Intelligence

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Capital markets


US CMBS: remote work and the evolution of the office market in Manhattan

About $125 billion in office loans have been securitized in US CMBS since 2017, and market players are closely watching trends in hybrid work environments and their implications for future demand for space. Manhattan is a key office market, given its relatively high exposure to CMBS transactions rated by S&P Global Ratings. Despite an increase in delinquencies and uncertainty surrounding the office sector, loan performance has remained stable and S&P Global Ratings has not taken any rating action on US CMBS since the start of the pandemic.

—Read the full report from S&P Global Ratings

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International trade


Analysis: Supply issues in competing countries are likely to make US corn attractive

Weather concerns in South American countries and tensions between Russia and Ukraine are expected to support maize exports from the world’s biggest seller, the United States, analysts said. During the initial phase of maize planting in Brazil and Argentina, record production was expected thanks to an expected increase in planted area and early rains. However, production projections were later revised downwards due to drought during the critical phase of the crop cycle. The United States is expected to produce 15.115 billion bushels (383.94 million tonnes) of corn in the 2021-22 marketing year, and the country’s estimated exports are 2.425 billion bushels (61.6 million tonnes ), according to data from the US Department of Agriculture.

—Read the full article from S&P Global Dishes

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ESG


Countries Seeking More Liquidity in Mining Put Pressure on Energy Transition Costs

Mining companies profiting from a period of high commodity prices and increased demand are facing a wave of tax hikes from governments strained by pandemic-fueled budget deficits. Political leaders have proposed raising royalties and taxes in at least eight mining-intensive jurisdictions around the world, leading some investors and companies to put on hold mining expansions and new projects needed to meet climate projections. request. It’s a trend that could keep supplies tight and prices high for minerals critical to the global energy transition, some industry experts say, while others say it’s too early to tell given that the tax proposals have not yet been adopted.

—Read the full article from S&P Global Market Intelligence

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Energy and raw materials


Listen: How would sanctions against Russia affect European oil markets?

As diplomatic talks between the United States and Russia continue, questions are being raised about the consequences, if any, of new economic sanctions on Russia’s bountiful crude oil and diesel exports to Europe. In this episode of the Oil Markets podcast, S&P Global Platts editors Rowan Staden-Coats and David Lewis talk with Rosemary Griffin and Francesco Di Salvo about the state of play between Russia and the West and the magnitude of the supply shock that the sanctions could cause to international oil. markets.

—Listen and subscribe to Oil Markets, a podcast by S&P Global Dishes

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Technology and media


Record APAC Fintech Funding in 2021 Paves the Way for More M&A

The strong rebound in fintech funding in Asia-Pacific in 2021 seems to suggest a deepening of investor conviction in the sector. As such, S&P Global Market Intelligence believes that venture capitalists are likely to remain invested in the fintech space, even if the recent market pullback dims prospects for IPOs or blank check exits. The uncertain market conditions ahead could, however, urge caution, pushing investors towards mature fintechs that have demonstrated financial discipline. While established fintechs have shown a propensity to acquire for growth when full of cash, S&P Global Market Intelligence expects strong M&A prospects as these mature companies continue to attract private capital.

—Read the full article from S&P Global Market Intelligence

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Written by Molly Mintz.

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