MacroScope

Turkish troubles

By Mike Peacock
January 10, 2014

Ask investors about their minimum criteria when putting money into a country and rule of law comes pretty high. That’s one of the reasons why Turkey’s corruption scandal, and the reaction of the government in ousting hundreds of police officers, is so serious. The lira touched a record low on Thursday.

Today, parliament’s justice commission will debate a draft law reforming the High Council of Judges and Prosecutors, which makes judicial appointments. Critics of the bill say it will give the justice minister significant influence over appointments, describing it as anti-constitutional and undermining the separation of powers.

Prime Minister Tayyip Erdogan’s ruling party is slipping in the opinion polls although it remains comfortably ahead of its opponents. Erdogan finishes an Asian tour today with a visit to Malaysia.

We’ve had a glut of UK retailers reporting their Christmas trading results. The picture has been mixed with the likes of John Lewis and Next thriving, Tesco, Marks & Spencer and Morrisons really struggling. Overnight, the British Retail Consortium reported slower sales growth in December despite signs of strong consumer confidence. November industrial output data follow later.

France would love to have Britain’s strength of recovery though the Bank of France has just updated its fourth quarter GDP estimate to growth of 0.5 percent. If confirmed, that would mark a strong pick-up from the third quarter when the euro zone’s second-biggest economy contracted 0.1 percent.

Supporting signs of revival, November industry output data have exceeded forecasts, bouncing by 1.3 percent on the month. For the markets, the only figure that counts today is U.S. non-farm payrolls.

One to watch: French President Francois Hollande has complained of breach of privacy and is considering legal action after a French magazine alleged he was having an affair with an actress. The French tend to take a very different approach to politicians’ private lives than the Anglo-Saxon world does but the headlines clearly won’t be welcome for Hollande.

The European Central Bank held course yesterday but Mario Draghi did his best to talk rates down, saying the ECB really, really, really means it when it says it stands ready to act again.

He also specified the two main headaches – rising short-term money market rates and the possibility of a “worsening” outlook for inflation – i.e. deflation. The former presumably could warrant a further splurge of cheap liquidity for the bank, the latter a rate cut. But only if deflation really takes hold could QE even be considered.

On that, it’s clear that falling prices in the likes of Greece and Portugal are not enough to trigger a significant policy response.
Today, Dutch Finance Minister Jeroen Dijsselbloem, who chairs the Eurogroup of euro zone finance ministers, speaks in Singapore while European Commission President Jose Manuel Barroso and his economics commissioner, Olli Rehn, are in new euro zone member Latvia.

Iran EU nuclear talks resume in Geneva. Iran’s deputy foreign minister Abbas Araqchi and senior EU official Helga Schmid hold talks aimed at ironing out remaining problems and setting a date for implementation of a nuclear agreement sketched out in November.
Japanese Prime Minister Abe is in Ivory Coast as part of a West African tour.

Abe will meet with President Alassane Ouattara and discuss investment, an attempt to rival China’s diplomatic and investment offensive in Africa. Abe will also visit Ethiopia and Mozambique. China’s foreign minister is in Africa at the same time.

A Tunisian caretaker government is due to be sworn in after ruling Islamists step down to make way for an independent administration to govern until elections this year as a way to end a political crisis. New premier Mehdi Jomaa, a technocrat, may give details on new cabinet, economic reforms and priorities for his government until elections in about six months.

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