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Jan 24, 2017

TRY: All eyes on October inflation data and on pending S&P rating review - TDS

Analysts at TDS suggest that today’s highlight is Turkey with both October inflation and a pending rating review from S&P due.
Key Quotes
“The first to be released is Turkey’s CPI. The consensus is expecting headline to quicken to 11.5% Y/Y from 11.2% in September on a 1.7% M/M (NSA) acceleration; core is also expected to deteriorate to 11.2% Y/Y from the prior 11.0%. In both cases, the inflation dynamic remains highly adverse vis-à-vis the 5% target (that will be missed for yet another year). On Wednesday, the CBRT released its October Inflation Report that carried along upside revisions to this year’s inflation projections (+1.1ppt to 9.8%) and next year’s as well (+0.6ppt to 7%). CBRT Governor Cetinkaya also warned against the possibility of upside surprises in today’s data. Whether that refers to the September release or the market consensus, we would cautiously positon for higher CPI than currently expected, which is likely to be conducive to weaker lira and higher front-end rates.”
“Also today, S&P is scheduled to review its BB (outlook negative) rating for Turkey—the same rating as Moody’s, while Fitch has BB+ (stable).  S&P moved the outlook to negative in January when the lira was under intense downwards pressure and there was concern whether the CBRT would tighten policy enough. By the time of S&P’s May review, the CBRT had hiked the WACF by about 370bps and the lira had recovered some of its earlier losses; in the review S&P kept the rating and outlook unchanged. Since May, growth has accelerated, but the fiscal deficit has widened, CPI remains high and USDTRY is around January’s levels. The political picture has also complicated. We expect S&P to keep the rating and outlook unchanged, but see some risk of a downgrade.” 

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