Catch 22 and Bank of England, the lira and the Bank of Turkey

17 Ara 2021

Yesterday we wrote about the illogical growth of the US stock market on Wednesday following the FOMC meeting. What was happening was very similar to the situation in boxing, when one of the boxers misses a strong blow, but by inertia, the fight continues actively for a couple of seconds. And then the legs give way and the brain gives the command to retreat.

So yesterday's drop in the Nasdaq index by 2.5% + is just from this opera. Waving fists on Wednesday night and at the start of Thursday, the US stock market crashed to the canvas.

Returning to consistency, once again we note that one of its last havens in the financial markets is the Turkish lira. Yesterday, the Bank of Turkey lowered its rate again, and the lira renewed its historic lows. We have already written more than once that there is one transaction in the foreign exchange market that there is no reason to doubt - this is the sale of the Turkish lira. Yesterday, the interest rate in Turkey was lowered by another 1%, but, however, they noted that for now they plan to stop there. In this light, perhaps, one can begin to fix profits in the sale of the lira. It was a great deal, but falling forever and without interruption - even the lira may not live up to such high expectations.

The main surprise of yesterday was the decision of the Bank of England. The country's central bank found itself in a situation that can be tentatively called "catch 22". In the country, inflation and the rate need to be raised to bring it under control. But the country has a pandemic and the economy is on the verge of another failure. So it turns out: if you raise the rate, you will raise the cost of financial resources and harm the economy, if you do not raise the rate, inflation will continue to grow, which again will harm the economy.

And if the ECB decided that God bless it with inflation, we will save the economy, then the Bank of England acted differently and raised the rate by 0.15%. Pound on this occasion even perked up a little. And the main thing is a precedent. The first of the leading central banks in the world, whose nerves broke down, and he raised the rate. This is a powerful signal to the markets that the next in line are the Bank of Canada and the Fed.

In general, we continue to sell risky assets. The environment for them is becoming more and more toxic.