Two developments have helped turned sentiment, or at least arrested the markets’ momentum. First, the developments in Turkey, where officials have taken a few measures that will make it somewhat more difficult to access the lira. This may have an unintended consequence of also making it more difficult for foreign investors to buy Turkey’s bonds at auctions, for example, not that this is an imminent challenge. It is also true that the dramatic depreciation of the lira and the likely compression of domestic demand will see the country’s external funding needs decline.  

Reports indicate that Qatar would also invest $15 bln in Turkey and this also aided sentiment. This is a short-term palliative. Given the reliance on foreign funding, Turkey owes about $16 bln before the end of the year.  Still, the desire of others to help ease the pressure on Turkey also is an important reminder that while the US can use its vast political, military, and financial assets to punish countries, it depends on others too. The true kindness of strangers lies not in buying US Treasuries, which often foreign central banks have done to minimize the appreciation of their own currencies, but in not doing end-runs around US policy.

Efforts to help circumvent US wishes can be punished as in sanctions announced yesterday and a Chinese company (and its Singaporean affiliate) and a Russian company for trading with North Korea (in violation of the UN as well). However, some like, Russia’s offer of 2.5 mln acres to China to grow soy, are more difficult to contain. The US embargo against Iran is not expected to be nearly as effective as the previous effort without the more active cooperations of others. 

The second development was the announcement that a Vice Minister from China will come to the US by the end of the month to resume trade talks after a two-month hiatus. This seemed to help ease anxiety on the margins, though expectations are fairly low as both sides appear to have dug in for a protracted conflict and a new round of US tariffs are expected to be announced before the end of the month. Keeping in line with the Trump Administration’s “maximum pressure” doctrine no relief is likely without Chinese concessions.