Weekly Digest: Turkish Lira’s Crash, Powell Stays for 2nd Term

4 minuti di lettura
25 nov 2021

25/11/21: Powell reappointed as the Fed chair, Turkish lira in an “insane” historic 15% crash, Biden unleashes strategic oil reserves to calm the surge in oil prices. And more.

Investment news

Powell is here to stay. Is inflation? Jerome Powell will stay for a second term as chair of the US Federal Reserve. He will be managing inflation and regulating the financial system for another four years. (Bloomberg)

The other front-running candidate, Lael Brainard, was favored by progressives on the left of Democratic Party. They criticized Powell for not doing enough to tackle climate change and poverty, also questioning Powell on how he’ll address inflation.

Read our SPOTLIGHT on how surging inflation could affect the gold price.

Gold fell below the $1,800 level on a stronger dollar and bets that the Federal Reserve could raise interest rates sooner as Powell starts a new term as the Fed chair. (CNBC)

Investors are betting that Powell will be pushed to step up the pace at which the Fed is normalizing monetary policy to better handle surging inflation.

“Dollar strength and market expectations of more aggressive action from the Fed is pushing gold down,” StoneX analyst Rhona O’Connell said.

A good opportunity to benefit from a lower gold price?

The World Platinum Investment Council (WPIC) expects platinum ETF demand to fall, while bar and coin demand is forecast to go up 25% in Q3 2021 and up 10% in 2022.

Industrial demand for physical platinum is also expected to increase, according to the report.

“Despite semiconductor chip shortage, platinum automotive demand forecast up 14% in 2021 and 20% in 2022 on substitution for palladium and tighter emissions legislation,” the report said.

Read our SPOTLIGHT to find out why platinum could be considered an interesting investment option.

Turkey's lira tumbled more than 15% this week after President Recep Tayyip Erdogan defended recent aggressive rate cuts in a major policy shift that he said would boost jobs, exports, and growth. The Turkish lira has shed 42% against the U.S. dollar this year, becoming the world's weakest currency. (Reuters)

Erdogan defends an unorthodox theory that higher interest rates cause higher inflation. Many economists, however, have called the rate cuts reckless, arguing that Turkey faces a huge crisis if interest rates continue to drop in the coming months.

U.S. President Joe Biden announced Tuesday that the U.S. will release 50 million barrels from its strategic petroleum reserves as part of an effort by energy-consuming countries to lower fuel prices. (The White House)

“This culminates weeks of consultations with countries around the world, and we are already seeing the effect of this work on oil prices. Over the last several weeks as reports of this work became public, oil prices are down nearly 10 percent,” the official statement said.

Oil prices have increased more than 50% this year, with demand exceeding supply as more countries emerge from national lockdowns imposed by the pandemic. The resumption of international travel is also adding to jet fuel demand.

But oil prices could climb higher despite the efforts to rein them, with a “considerable amount of bets out there that we will see $100 a barrel oil.” (CNBC)

“It’s not going to work simply because the strategic petroleum reserve — any country’s strategic petroleum reserve is not there to try to manipulate price,” Stephen Schork, editor of the Schork Report, said, adding that strategic oil reserves exist only to offset short-term supply disruptions.

Opinion

Turkey may not be the only country facing a currency crisis if the U.S. increases interest rates, prominent emerging markets investor Mark Mobius said Tuesday. “With higher interest rates in the U.S., all these other countries that have debt in dollars will be hit.” (CNBC)

Mobius did not specify which other countries could be affected, but an analysis published last week by investment bank Nomura found that Egypt, Romania, Turkey and Sri Lanka are the four emerging markets most at risk of an exchange rate crisis.

“Looking ahead, the prospect of the Fed normalizing monetary policy amid China’s deepening economic downturn is not a particularly good combination for [emerging markets],” the report said.

What else is happening

Der Boss: Olaf Scholz becomes the new German chancellor after sealing a coalition deal with the Greens and the Free Democrats, marking the end of Merkel’s 16 years in power. (Bloomberg)

An unprecedented alliance between Scholz’s center-left Social Democrats, the Greens and the pro-business Free Democrats aims to revamp the German economy by tackling climate change and promoting digital technologies.

Europe might be falling victim to the politicization of gas supplies from Belarus to Turkey. Take a look at the chart below. (Bloomberg)

The European gas price has jumped again in recent days because of worries that Russia would keep flows down after the certification for the Nord Stream 2 gas pipeline was suspended.

The chart below represents the Dutch TTF natural gas futures price.

a chart showing european natural gas prices

And finally…

NFT hype got a big boost. Collins Dictionary declared NFT its word of the year for 2021, recognizing the convergence of money, tech, and art.

Collins defines them as “a unique digital certificate, registered in a blockchain, that is used to record ownership of an asset such as an artwork or a collectible.”

 

See you next week!

 

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