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from Global Investing:

Turkey gearing up for rate cuts but not today

Could the Turkish central bank surprise markets again today?

Given its track record, few will dare to place firm bets on the outcome of today's meeting but the general reckoning for now is that the bank will keep borrowing and lending rates steady and signal no immediate change to its weekly repo rate of 5.75 percent. With year-on-year inflation in the double digits, logic would dictate there is no scope for an easier monetary policy.

But there are reasons to believe the Turkish central bank, whose mindset is essentially dovish, is letting its thoughts stray towards rate cuts. Consider the following:

a) Governor Erdem Basci has already said he does not see the need for further policy tightening  b)The lira has strengthened  9 percent this year against the dollar and is back at levels last seen in early September, thanks to almost one billion dollars in foreign flows to the Turkish stock market and well-subscribed bond issues. And crucially c) Global factors are supportive (developed central banks are continuing to pump liquidity and a bailout  has finally been agreed for Greece) .

So some analysts are already weighing the likelihood of a pre-emptive rate cut in Turkey. ING analyst Sengul Dagdeviren writes:

Depending on the CBT's view on capital inflows (ECB LTRO due soon, quantitative easing bias strengthening in G10, and Greece worries diminishing look supportive in that regard), the chance that it could surprise markets by lowering the upper band of the overnight interest rate corridor to 9 percent (down from 12.5 percent) remains.

The key to this will be the lira's exchange rate.

from Global Investing:

Euro periphery: Lehman-type shock still on cards

The passing of Greek austerity measures is fuelling a rally in peripheral debt today with Italian, Spanish and Portuguese yields falling across the curve.

However, one should not forget that peripheral economies are still under considerable risk of becoming the next Greece -- rising debt and weak economic growth pushing the country to seek a bailout -- as a result of tighter financial conditions.

Take this warning from JP Morgan:

Financial conditions have deteriorated far more in peripheral Europe than in the core. The drag from this on peripheral GDP is akin to that seen following the Lehman crisis.

JP Morgan uses analysis based on quantifying the impact of financial market developments and monetary policy actions on economic activity. The main variables the analysis uses is: the three-month LIBOR rate, the yield on investment grade corporate bonds, the spread of high yield corporates over that of high grade, real equity returns, the change in the real exchange rate and bank lending standards for businesses as reported in loan officer surveys.

According to JP Morgan's calculations, the 838 basis-point rise in the peripheral HY spreads implies a drag of -2.2 percent of GDP relative to what it would otherwise have been, had the HY spread unchanged.

from MacroScope:

Will U.S. criticism affect Japan’s FX stance?

Currency analysts are divided over whether U.S. criticism of Japan's forex policy will change Tokyo's currency stance. While some say it could raise the hurdle for further Japanese intervention, others think it might not have much impact. Rob Ryan, FX strategist at BNP Paribas in Singapore says the effect will be limited given uncertainty about the Japanese economy's outlook and current levels of dollar/yen and cross/yen pairs.

"I think if they (Japanese authorities) feel they have to intervene, they will intervene," Ryan says, adding that a dollar drop down to the "low 76s" might be enough to prompt further action from Japan.

The U.S. Treasury Department said in its semi-annual report on international exchange rate policies issued on Tuesday that the U.S. did not support Japan's recent bouts of solo FX intervention, adding that they took place when volatility in dollar/yen was relatively low. USD/JPY was currently trading at Y77.98, not too far from a record low of Y75.311 hit on Oct. 31, when Japan conducted massive yen-selling intervention.