This week will go a long way to determining whether a violent emerging market shake-out turns into a prolonged panic or is limited to a flight of hot money that quickly fizzles out.
On our patch, Turkey is under searing pressure, largely of its own making and that is the theme here. Yes, the Federal Reserve’s slowing of money printing is the common factor, prompting funds to quit emerging markets, but it is those countries with acute problems of their own that are really under the cosh.
Prime Minister Tayyip Erdogan’s purging of the police and judiciary in response to a corruption inquiry that has got uncomfortably close to him has unnerved investors. The central bank, under political pressure, has not raised interest rates but is instead burning through its reserves to defend the lira with only limited success.
French President Francois Hollande will visit Ankara today for talks which are likely to shed fresh light on the impact on Turkey’s EU accession bid of the crackdown on the judiciary and police. The trip follows Erdogan’s first visit to Brussels in five years, where he faced sharp criticism.
Brazilian central bank governor Alexandre Tombini speaks at the London School of Economics. The Brazilian real shed 1 percent against the dollar at one point on Friday so was not at the sharp end of the sell-off.