Turkish bonds fell on Friday after a surprise spike in November inflation data put pay to expectations of a last interest-rate cut by the Central Bank, while shares gained further after Turkey's upgrade by Fitch. Consumer prices rose a higher than expected 1.27 percent month-on-month in November, the Turkish Statistics Institute said on Thursday, above a forecast rise of 0.97 percent in a Reuters poll.
The Central Bank said on Friday inflation would keep rising in December due to base effects, but basic inflation indicators remained low. Prior to the data many analysts had expected one last cut to the benchmark borrowing rate by the bank, which has been cutting rates since November 2008. Expectations rates will now remain stable spurred some selling in Turkish paper.
The benchmark August 3, 2010 bond yield climbed to 8.91 percent from 8.80 percent. "The bond market saw some selling after inflation data. Apparently foreign clients are giving sale orders but the selling pressure from them is not very aggressive," TSKB analyst Cagatay Piskin said. Foreign trade data late on Friday showed Turkey's trade deficit shrank 50.7 percent on the year to $2.573 billion in October, lower than a Reuters poll forecast of a $3 billion deficit.
Exports rose 3.9 percent to $10.1 billion while imports fell 15.2 percent to $12.675 billion. A two-notch upgrade to Turkey by Fitch continued to boost the lira and stocks. The agency added in a teleconference on Friday, it did not anticipate any further upgrades in the near-term. The upgrade bolsters expectations from Turkey's markets for next year, after the economy shrank 10.5 percent in the first half of 2009.
The government expects a 6.0 percent contraction this year. Merrill Lynch said it was convinced Turkey could show surprising growth next year as consumers responded to historically low interest rates. "Yet with high October consumer price inflation and a dovish Central Bank, it may take time for investors to gain similar conviction," it said on Friday.
The government expects the economy to grow 3.5 percent in 2010. "Early in 2010 we expect Turkey will continue to under-perform Russia, Hungary and South Africa where investment themes are more tangible. But as the story gels, Turkish equities should deliver. Don't go defensive stick with rate sensitive banks, autos, REITS (Real Estate Investment Trusts) and materials," Merrill Lynch said.
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