USDTRY: The Big Short?
Turkish President Erdogan warns investors shorting the Lira will pay a heavy price
Although the political instability is causing major headlines in the news for Turkey, a lot of important data is being missed in the noise. The Turkish Lira has actually had a really good month of data to suggest a strengthening economy. I also wouldn't mess with a crazy man who has monetary authority.
Turkish Consumer Confidence
Consumer confidence indicator is a measure of the mood of consumers or businesses. It is usually based on a survey during which respondents rate their opinion on different issues concerning current and future conditions.
As we can see from the results overall the consumer market is quite healthy and since last month it has gained just under 2 points. This shows consumers have a positive outlook on the future, this can lead to factors such as increased spending, more investment and more money circulating in the economy. Overall showing demand for the TRY.
Capacity Utilization & Business Confidence
Capacity utilization is a concept in economics and managerial accounting which refers to the extent to which an enterprise or a nation actually uses its installed productive capacity. Thus, it refers to the relationship between actual output that 'is' actually produced with the installed equipment, and the potential output which 'could' be produced with it, if capacity was fully used.
Business confidence indicator is closely linked to corporate spending and correlated with employment, consumption and investment. Therefore it is carefully watched as an indication of possible changes in the overall economic growth.
As we can see from the underlying data, the capacity utilization shows that companies are producing more products efficiently compared to last month growing at 0.03%. On top of this Business Manufacturing confidence jumped up to 102.1 a jump of about 4 points.
The combination of increased efficiency and production with business confidence shows how manufacturers and producers are confident in the future state of the economy. Therefore, this is likely to lead in increased retail sales, more consumer spending and increased exports. All increasing the demand for the TRY.
Tourism & Trade Balance
Tourism is a service based industry that applies to people's traveling and staying in a place that is not their usual environment and for the purpose of leisure, not business. It includes such elements as accommodation, food and beverages, souvenirs, tours, transport but also relaxation, adventure, culture. Tourism can substantially impact economic development of both host countries and home countries of tourists.
Foreign trade statistics include imports, imports with waiver and exports.Import figures include all direct imports to the country for domestic consumption also goods entering the customs area for temporary admission transit transshipment or to be stored in a bonded warehouse and then offered to the domestic market after modification of their import status Exports include goods produced domestically.Foreign trade statistics exclude export and import data obtained from duty-free zones and duty-free shops.
Since Turkey is a major tourist hot spot there's no surprise that it can affect the economy. Recent figures show it nearly doubling in growth in the past month to 9.28% from 5.30% as we start to reach Easter breaks in western countries. This signals a large influx of tourists and demand for the TRY as tourists sell their currency to buy the Lira while on holiday.
On top of this we can see how the trade balance figures are starting to grow from the deficit before at -2.50B. If a country exports more than it imports, there is a high demand for its goods, and thus, for its currency. The economics of supply and demand dictate that when demand is high, prices rise and the currency appreciates in value. In this case exports are growing and there's a higher demand for goods and the TRY.
Manufacturing PMI
The Purchasing Managers' Index (PMI) is an indicator of economic health for manufacturing and service sectors. The latest results show growing health in both manufacturing and services which ties in nicely with previous data of increasing tourism service and capacity utilization. A further signal of TRY strength this month.
CPI & PPI
The Consumers Price Index (CPI) measures the rate of price change of goods and services purchased by households. It measures changes in the average level of prices over a period of time with a given starting point or base period which is usually taken as 100. the CPI can be used to compare current period consumer prices with those in the base period.
Producer Price Index (PPI) measures a change in the prices of goods and services, over a span of time, either as they leave their place of production or as they enter the production process. PPI measures a change in the prices received by domestic producers for their outputs or the change in the prices paid by domestic producers for their intermediate inputs.
Overall we can see from the underlying data this month the TRY is showing expansive data. However, mass media is saying the Lira is going to tumble? The political unrest is playing a major factor however don't let that take your eyes away from the major fundamentals.
As the opinion of the crowds is generally wrong and when currencies hit headlines like the TRY we can actually find some neat contrarian positions in the noise. AKP, was shown to be losing the contests for mayor in both Ankara and Istanbul, suggesting a possible power shift which could further strengthen the TRY. Remember, much of what's happening now to the Lira is emotive, the market will price it's true value in soon.
