The Right Medicine? Turkey Hikes Interest Rates To Combat Financial Crisis

                                                           (Video length 00:06:50)

On the latest edition of Market Week in Review, Senior Investment Strategist Paul Eitelman and Consulting Director Sophie Antal Gilbert discussed the market impact of trade developments between the U.S. and China, steep interest-rate increases in Turkey, and the state of the U.S. banking sector 10 years after the collapse of Lehman Brothers.

Potential for renewed U.S.-China trade discussions moves markets

The sensitivity of financial markets in regard to trade was on display again the week of Sept. 10, Eitelman said, as incrementally positive news earlier in the week helped lead to gains in most major indexes. “Reports that the U.S. and China may potentially restart trade negotiations drove markets a bit higher”, he said, noting that as of mid-morning Sept. 14, both the S&P 500® Index and the Euro STOXX 600® Index were up about 1% on the week, with the MSCI Emerging Markets Index up roughly 0.75%.

While there’s no guarantee that another round of trade talks between the two countries will be successful, Eitelman believes that any future discussions could help open more pathways to a positive outcome, in addition to helping stave off a full-blown trade war.

Turkey announces steep interest-rate increases

Turning to emerging markets, Eitelman noted that the Turkish central bank sharply increased interest rates on Sept. 13, hiking borrowing costs by 6.25%. With Turkey mired in a currency crisis amid high inflation, this was a necessary move, he said. “This very steep rate increase is tough medicine, but it’s the right medicine”, Eitelman remarked, “as we believe Turkey needs to impose high rates in order to tackle its inflation problem and hopefully stem the capital outflows that have been occurring this year”.