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Will Turkey’s new central bank governor announce a big rate rise?

Expectations are high for the first monetary policy meeting chaired by Naci Agbal, Turkey’s new central bank governor, on Thursday.

His appointment on November 7 triggered the departure of president Recep Tayyip Erdogan’s finance minister and son-in-law Berat Albayrak, who had faced months of criticism for his management of the country’s $740bn economy.

Following the upheaval, Mr Erdogan — who is infamous for his opposition to high interest rates — promised a reset with international and local investors and vowed to “swallow a bitter pill” if necessary to get the economy back on the right track.

Markets responded with glee. The Bist 100 stock index climbed by nearly 8 per cent over the week. The lira, which has lost more than a quarter of its value against the dollar this year, also rallied as investors bet that the central bank would announce the substantial interest rate rise that economists have long warned is sorely needed.

Estimates range from no change in the one-week repo rate, currently at 10.25 per cent, to an increase to 16 per cent, according to a Bloomberg survey. The median projection is a rise to 15 per cent.

Daniel Salter, head of equity strategy at Renaissance Capital, argues that an increase of 4 percentage points or more would be enough to send “a strong but necessary signal of a desire to normalise policy, attract money back to lira assets, control inflation and stabilise the currency”.

Per Hammarlund, chief emerging market strategist at Swedish bank SEB, offered a warning to the new governor about the danger of a currency plunge: “If Agbal fails to act decisively, expect the lira to fall sharply to new lows.” Laura Pitel

How much has US consumer spending slowed?

US retail sales figures, due on Tuesday, are expected to show that month-on-month growth slowed in October ahead of the key holiday shopping season as the effects of fiscal stimulus fade and the coronavirus pandemic worsens

Economists estimate that retail sales advanced 0.5 per cent from September when they rose 1.9 per cent. So-called control sales, an underlying measure that excludes more volatile items such as petrol and building materials, are also expected to have climbed 0.5 per cent month on month in October. 

Consumer spending — a key driver of the US economy — was supported earlier this year by a record-breaking $2tn fiscal stimulus package that helped boost incomes. However, Congress failed to strike an agreement on another package ahead of this month’s US election and some economists now think the prospects for one before the presidential inauguration in January are dimming

“Consumers are likely to be much more cautious in the coming weeks with employment slowing and fiscal aid disappearing,” said Gregory Daco, economist at Oxford Economics. “As such, phase two of the recovery is expected to be much slower.”

Despite last week’s announcement of a coronavirus vaccine breakthrough, the US is experiencing a resurgent wave of infections heading into the Thanksgiving holiday on November 26 and some states have introduced further restrictions to curb the spread of the virus. 

“I think we’re in a pretty tough place right now,” said former New York Federal Reserve president William Dudley during the FT’s Global Boardroom event last week. “I wouldn’t rule out a double dip if the pandemic worsens.” Mamta Badkar

Is the gold rally coming to an end?

Gold prices last week fell to their lowest levels since the end of September following the news of a big step forward in the search for a Covid-19 vaccine. 

The price of the haven asset has pushed 24 per cent higher this year, peaking at a record of $2,072 an ounce in August. In part, that is because of the popularity of gold-backed exchange traded funds, which trade on stock exchanges but are linked to physical holdings of gold stored in vaults. 

But gold has erased most of its gains for the month. Having gained 4 per cent in the first week of November, it dropped 3.3 per cent in the second to end the week around $1,890 a troy ounce.

In a sign of the change in sentiment last week, gold-backed ETFs had the biggest net outflows since the stock markets plunged in March. 

Nevertheless, some analysts predict that gold’s strength is not over yet.

Goldman Sachs said that an improving US economy in 2021 could be supportive for gold, especially in the event of an increase in inflation, for which the metal is often used as a hedge.

“In our view, the structural bull market for gold is not over and will resume next year as inflation expectations move higher, the US dollar weakens and emerging market retail demand continues to recover,” Goldman Sachs said, adding that it expected gold prices to rise to $2,300 an ounce within the next year. Henry Sanderson

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