MNI US MARKETS ANALYSIS - Turkish Volatility Spills Over

Highlights:

• Turkish political volatility spills over into G10, underpinning USD rally
• Fed's outlook on policy, the economy, key to any market reaction at today's FOMC decision
• BoJ decision keeps pricing on track, no change

US TSYS: Slightly Lower On The Day With The FOMC In Focus

• Treasuries are back little changed overnight, ahead of a thin docket before the FOMC decision, SEP and press conference later on.
• Cash yields are between 0.1-1.1bp higher on the day, with increases led by the belly.
• TYM5 sits at 110-22 (- 03+) on subdued cumulative volumes of 255k, comfortably within yesterday’s range throughout the overnight session.
• Support at 110-12+ (Mar 6/13 low) remains intact whilst the trend condition remains bullish with resistance at 111-25 (Mar 11 high).
• MNI Fed Preview here.
• The majority of analysts expects the FOMC to leave its Dot Plot funds rate medians unchanged in March compared with the December meeting. That would imply the Fed is still pencilling in 50bp of cuts in 2025 (to 3.9%) and 2026 (to 3.4%), with a further 25bp cut in 2027 (to 3.1%). The lack of conviction to resume the easing cycle comes in the context of significant government policy shifts posing arguably two-way risks to both the inflation and employment mandates, as well as mixed economic activity indicators and still-elevated inflation readings.
• Fed Funds implied rates only just fully price a next Fed 25bp cut with the July meeting and sub 60bp of cuts for 2025 as a whole.
• Data: MBA mortgage apps (0700ET), TIC flows Jan (1600ET)
• Fed: FOMC announcement including SEP (1400ET), Powell press conference (1430ET)
• Coupon issuance:
• Bill issuance: US Tsy $60B 17W bill auction (1130ET)

FED: MNI Fed Preview-March 2025: Analyst Outlook

This update of our Mar 14 Fed preview includes analyst expectations – Download Full Report Here

MNI BoE Preview - March 2025 (Updated)

Download Full Report Here

MNI View: Uncertain vote split, near certain outcome and guidance

Note: Corrects stale analyst views from page 7 onwards.

• It would be a huge surprise to us, markets and sellside economists if there was anything other than a pause in the MPC’s cutting cycle at the March meeting with unchanged guidance.
• Probably the most interesting unknown is the voting split, with the number of plausible dovish dissents ranging from two to four – we suspect with a low conviction that there could be three, one more than consensus. We look at how each member is likely to vote in the detail.
• We have read through over 20 sellside previews and summaries the sellside outlook as well as the highlights of each banks' individual view.

SNB: MNI SNB Preview: March 2025 - End In Sight, Question Is When

Download Full Report Here

Executive Summary:

• Markets see a 25bp cut to 0.25% at Thursday’s meeting as most likely but do acknowledge the risks of a hold, with OIS-implied odds standing around 70/30 in favour of easing
• Inflation has slowed further since the December meeting, but has printed slightly above the conditional SNB inflation forecast for Q1 so far. This, together with any potential changes to the policy statement rate outlook, could give a hint on terminal rate considerations
• CHF has proved volatile but overall stands lower in real, trade weighted terms compared to the December meeting – while the base case is for unchanged FX communications, any new rhetoric here would also warrant attention

RIKSBANK: MNI Riksbank Preview - Mar '25: Time To Hold Fire

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EXECUTIVE SUMMARY: Time To Hold Fire

• The Riksbank is widely expected to hold rates at 2.25% on Thursday, with increased domestic inflationary pressures driving a hawkish adjustment in analyst and market expectations since the January decision.
• The March decision includes an updated Monetary Policy Report and rate path projection. We think a flat path at 2.25% throughout the forecast horizon is most likely. Although the January and February inflation outcomes will have a net hawkish impact on the rate path, there are offsetting factors from the details of the reports, alongside soft activity signals to start the year and a much stronger-than-expected exchange rate.
• Additionally, we don’t think there is much to be gained from a communication standpoint in shifting the rate path up a few basis points.
• The analyst previews MNI has seen unanimously expect the Riksbank to remain on hold at 2.25%. Of those who expressed a view on the March MPR rate path, most see a horizontal trajectory at 2.25% as the most likely outcome (in line with MNI’s view), with slight upside risks.
• Most of a hawkish Riksbank pivot is already priced into markets. As such, we view the risks to the March decision for SEK FX as quite balanced. 

US TSY FUTURES: Long Setting In TY Dominated On Tuesday

OI data points to a mix of net long setting and short cover during yesterday’s uptick in Tsy futures, with the only positioning swing of note coming via long setting in TY futures (~$3.7mln DV01 equivalent).

STIR: Mix Of Positioning Swings Seen In SOFR Futures On tuesday

OI data suggests that a mix of net long cover (dominant in SFRH5 though Z5), long setting and short cover was seen as the SOFR strip twist flattened on Tuesday.

• The net long cover in the very front end provided the most prominent positioning move.

TURKEY: Markets Roiled by Arrest of Opposition Leader, TRY Drops as Much as 10%

USDTRY has rallied significantly at the start of Wednesday’s session, up around 6% at typing though gains had previously eclipsed 10%, which placed the pair above the 41.00 handle. Istanbul mayor Ekrem Imamoglu was taken into custody early Wednesday morning at his home, triggering the sell-off across Turkish assets. Alongside the drop in the lira, the benchmark Borsa Istanbul 100 Index fell 6.9% at the open, triggering a trading suspension under the circuit-breaker rules. Losses currently stand at around 5.5%. Note that the uptick rule has been applied for short sales on the top 50 stocks.

• Police detained Imamoglu on alleged corruption charges in a move denounced by CHP leader Ozgur Ozel as "a coup attempt against our next president". Media reports also spoke of a second probe into allegedly aiding the banned Kurdistan Workers' Party (PKK).
• Note that Turkish authorities revoked Imamoglu’s university diploma yesterday - a mandatory requirement for the office of presidency. That marked the latest of a slew of investigations and lawsuits into the mayor – one of which threatens a 7-year prison sentence.
• Turkey is scheduled to vote for its next president in 2028, where there is growing speculation that Erdogan is preparing to stand for a new mandate. Imamoglu is expected to become the opposition’s presidential challenger this month at a meeting of his Republican People’s Party (CHP) on March 23.
• The sell-off across Turkish assets may have been a catalyst for that broader risk-off move across global markets. Gauges of EM stocks and currencies have slid today, with those moves unwinding in tandem with the partial recovery in the lira off its lows. Bloomberg flag BBVA as one name to watch this morning thanks to its exposure to Turkey via its investment bank. It opened 2.8% lower.

TURKEY: Why is Turkish Political Uncertainty Impacting Wider Markets?

• Greenback holding a large part of the Turkey-triggered rally this morning, keeping the USD Index comfortably firmer against G10, and particularly against EM FX more broadly: it's not just TRY that's sold off sharply, but ZAR, HUF and even MXN have all suffered from the open.
• Why is Turkey moving global markets more broadly here? Over the past few months, the bulk of political uncertainty has stemmed from the US, making intra-European political ties more important to geopolitical stability. Turkey are confirmed to come under the EU's "Security Umbrella" as part of the ReArm initiative, making Ankara a key security partner as Trump withdraws the US from the global picture. This morning's news shakes the assumed strength of these ties.
• As a result, markets are having to again reprice - factoring in a less certain path for Turkey's return to economic orthodoxy (a key tenet of Treasury Minister Simsek's approach), just as Turkey are becoming a more important piece in the global geopolitical puzzle, and a key influence in the Russia-Ukraine conflict.
• Local press are already reporting on CBRT intervention. While USD/TRY sales at 40 could stem the fallout in local markets, it's clear to see sentiment is unsettled more broadly here - and an intervention-led rally in TRY may have only limited feed-through for EM FX, G10 and beyond.

TURKEY: Imamoglu Arrest Risks Social Unrest Despite Ban On Protests

REPOST: Typo in second paragraph fixed. The arrest of Istanbul mayor and key opposition figure Ekrem Imamoglu on charges of being a "criminal organisation leader suspect" has roiled domestic and regional financial markets (see 'FOREX: EUR Undermined by Jolt in Turkish Political Uncertainty', 0926GMT, 'TURKEY: Why is Turkish Political Uncertainty Impacting Wider Markets?', 0909GMT, and 'TRY: Markets Roiled by Arrest of Opposition Leader, TRY Drops as Much as 10%, 0812GMT). As has been noted, Imamoglu is seen as the most significant political challenge to President Recep Tayyip Erdogan, with the Istanbul mayor due to have been confirmed as the presidential candidate for the main opposition centre-left Republican People's Party (CHP) on 23 March.

• Turkish authorities have already taken the preventative step of closing all roads and metro stations around Taksim Square in Istanbul, which has been the site of mass protests over the years. All demonstrations have been banned across the city from 19-23 March. Restricted access to social media including X, TikTok, YouTube and Instagram has also been reported.
• It remains to be seen if such actions prove sufficient in dissuading opposition figures from taking to the streets. With Imamoglu, as well as hundreds of others including politicians, journalists, and business figures arrested on corruption charges, this is the most severe sign of a gov't crackdown since the response to the failed military coup against the Erdogan gov't in 2016.
• According to the constitution, Erdogan is term-limited and therefore cannot run in the 2028 election. However, there is speculation a snap election could be called before then. Under Art. 106 of the Turkish Constitution, if the presidential office becomes vacant, i.e. by calling a snap election, then the uncompleted term does not 'count', which would allow Erdogan another electoral run.

FOREX: EUR Undermined by Jolt in Turkish Political Uncertainty

• The greenback is rallying against all others in early Wednesday trade - firmer on the back of the political uncertainty stemming from Turkey. Local police have detained the Istanbul Mayor Imamoglu and presumed primary opposition to Erdogan at the 2028 President election, prompting a sharp spell of weakness for the Turkish currency and local equities. Given Turkey's close proximity to the global security picture, and key influence over the Russia-Ukraine conflict, markets more broadly are reacting, putting the USD higher and AUD, NZD lower.
• The BoJ decision noted some unease over the outlook for tariffs at their unchanged rate decision overnight - but importantly Ueda stressed that the BoJ won't be rushed into raising rates - with the risk of falling behind the curve not very high at this stage.
• EUR/USD slippage picked up to press EUR/USD to 1.0874 on the Turkish newsflow, and while much of that decline has been reversed into the NY crossover, the price action goes to show that the pair can swiftly suffer from intraday reversals on the right newsflow - despite the underlying bull trend in the pair.
• The Fed decision ahead takes focus next, and while the FOMC are not expected to take policy action today, the SEP and divergence of views over the trajectory of the economy will be key to any market reaction. ECB speakers today include de Guindos, Villeroy and Elderson.

OPTIONS: EUR/USD Bounce Keeps Spot Within Range of Sizeable Strike

EUR/USD's bounce off lows keeps the spot rate well within range of a sizeable strike rolling off today at $1.0900, but notable interest also seen below at 1.0800, 1.0850 and 1.0950 - which should contain ranges ahead of the Fed decision later today:

Notable strikes rolling off today:

• EUR/USD: $1.0800(E1.5bln), $1.0850(E767mln), $1.0900(E1.5bln), $1.0950(E1.1bln)
• AUD/USD: $0.6340(A$740mln)
• USD/CAD: C$1.4315-25($925mln)

EQUITIES: Medium-Term Trend Direction for Eurostoxx 50 Futures Remains Up

• Eurostoxx 50 futures have recovered from their recent lows. The M/T trend direction remains up and the recent pullback is considered corrective. Support to watch is the 50-day EMA, at 5326.29. It has recently been pierced. A clear break of this average would highlight a stronger short-term bear threat and suggest scope for a deeper retracement towards 5202.00, a Fibonacci retracement. A continuation higher would open the 5600.00 handle.
• The trend condition in S&P E-Minis remains bearish and the contract continues to trade closer to its recent lows. Moving average studies are in a bear-mode set-up highlighting a dominant downtrend. Sights are on 5483.50, a Fibonacci projection. Note that the short-term trend condition is oversold. Recent gains are considered corrective and the bounce is allowing this set-up to unwind. Firm resistance to watch is 5955.55, the 50-day EMA.

COMMODITIES: Gold Comfortably Clears $3000 Handle, Reinforcing Bullish Trend

• A bearish condition in WTI futures remains intact and the latest round of gains appear corrective - for now. Recent weakness resulted in a breach of $69.80, the Feb 4 low. This confirmed a resumption of the downtrend that started Jan 15 and has paved the way for an extension towards $63.73 next, the Oct 10 ‘24 low. MA studies are in a bear-mode position, highlighting a dominant downtrend. Key pivot resistance to watch is $69.29, 50-day EMA.
• A clear uptrend in Gold remains intact and this week’s resumption of the bull cycle reinforces current conditions. The yellow metal has cleared the psychological $3000.0 handle. Bulls have their sights on 3056.84 next, a Fibonacci projection. Note that moving average studies are in a bull-mode position, highlighting a dominant uptrend and positive market sentiment. Key trend support is at $2832.7, Feb 28 low.

Date	GMT/Local	Impact	Country	Event
19/03/2025	1100/0700	**	US	MBA Weekly Applications Index
19/03/2025	1200/1300		EU	ECB de Guindos In Madrid
19/03/2025	1300/1400		EU	ECB Elderson At European Financials Conference
19/03/2025	1430/1030	**	US	DOE Weekly Crude Oil Stocks
19/03/2025	1800/1400	***	US	FOMC Statement
19/03/2025	2000/1600	**	US	TICS
20/03/2025	2145/1045	***	NZ	GDP
20/03/2025	-		CH	Swiss National Bank Meeting
20/03/2025	0030/1130	***	AU	Labor Force Survey
20/03/2025	0700/0700	***	GB	Labour Market Survey
20/03/2025	0700/0800	**	DE	PPI
20/03/2025	0800/0900		EU	ECB's Lagarde At ECON Hearing
20/03/2025	0830/0930	***	CH	SNB PolicyRate
20/03/2025	0830/0930	***	SE	Riksbank Interest Rate Decison
20/03/2025	0830/0930	***	CH	SNB Interest Rate Decision
20/03/2025	0900/1000		NO	Q1 Regional Network Survey
20/03/2025	1000/1100	**	EU	Construction Production
20/03/2025	1100/1100	**	GB	CBI Industrial Trends
20/03/2025	1200/1200	***	GB	Bank Of England Interest Rate
20/03/2025	1200/1200	***	GB	Bank Of England Interest Rate
20/03/2025	1200/1300		EU	ECB's Lane At UCC Economics Society's Conference
20/03/2025	1200/1200		GB	Agents summary of business conditions
20/03/2025	1230/0830	*	CA	Industrial Product and Raw Material Price Index
20/03/2025	1230/0830	***	US	Jobless Claims
20/03/2025	1230/0830	**	US	WASDE Weekly Import/Export
20/03/2025	1230/0830	**	US	Philadelphia Fed Manufacturing Index
20/03/2025	1230/0830	*	US	Current Account Balance
20/03/2025	1400/1000	***	US	NAR existing home sales
20/03/2025	1430/1030	**	US	Natural Gas Stocks
20/03/2025	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
20/03/2025	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
20/03/2025	1650/1250		CA	BOC Governor speaks in Calgary
20/03/2025	1700/1300	**	US	US Treasury Auction Result for TIPS 10 Year Note
21/03/2025	2330/0830	***	JP	CPI