Trump and Turkey: big market questions this week

Here are the market-related questions FT reporters will be examining this week, the first in which a Nato-ambivalent son of a New York property baron will command the world’s most powerful political office.

Will the Trump-trades persist with the president in power?

The post-election story in markets has largely been about what campaign promises turned into reality could do to a US economy already several years into a recovery. The possibility of tax cuts, higher inflation and appointees to a Federal Reserve more inclined to raise interest rates has led to higher bond yields, a stronger dollar and record highs for stock market indices.

Disappointment may follow, if legislation fails to appear with the same frequency as presidential tweets.

What’s a fair wage, copper?

The eyes of the metals industry will be on Chile next week when a new pay deal will be put to workers at Escondida, the world’s biggest copper mine. They have already rejected an initial offer from operator BHP Billiton and now wait to see the final proposal. That will be delivered on Monday with a vote scheduled for the following day.

In the first nine months of 2016, Escondida produced 750,000 tonnes of copper, so the impact of a strike would reverberate, analysts say.

“The effects of a prolonged strike at Escondida on the copper price will probably be significant, with prices possibly reaching above $6,000 a tonne were a disruption to materialise,” said JPMorgan. Copper closed at about $5,750 on Friday.

Will Turkey’s central bank raise rates?

Tuesday’s central bank’s meeting takes place against the backdrop of political pressure, with Turkish president Recep Erdogan wanting CBT governor Murat Çetinkaya to cut interest rates to support an economy rocked by violence.

However, analysts have been hollering for the opposite action, some even suggesting the precipitous fall in the Turkish lira demanded an unscheduled meeting of policymakers.

Indeed, although it got a boost on Friday, the lira remains the currency market’s worst performing currency of the year, down 7 per cent, and nearly 20 per cent below its level of three months ago. The lira’s fall is fuelling inflation, damaging consumer and investor confidence and hobbling an economy once seen as a star in the emerging market firmament.

The bank has been taking a series of unconventional measures to staunch the flow, auctioning currency swaps, but to little effect, with the lira at one point another 3 per cent weaker last week.

Economists are growing in conviction that the central bank’s arguments will prevail. An aggressive rate rise may be a stretch — but a move higher is on the cards.

Is there more sterling volatility to come?

The answer is probably yes, but not to the same extent as last week when pre-speech briefing sent the pound down far enough that it then rebounded 3 per cent in one day, after Theresa May set out her principles for negotiating Brexit.

Tuesday sees the Supreme Court hand down its decision on whether the High Court was right to rule that the government had to consult parliament before sending the formal Article 50 letter, which triggers the UK’s two-year exit from the EU.

If the court rules against the government, it presents the prime minister with a logistical problem, and a possible delay as she seeks approval from MPs and the House of Lords. The initial High Court ruling boosted the pound, so ratification by the Supreme Court may have a similar, though modest, impact.

Then comes the first estimate of UK GDP in the fourth quarter, which will reveal whether post-Brexit resilience in the economy is holding. Friday’s poor retail sales knocked 0.6 per cent off the pound’s value against the dollar, evidence that rising inflation is hindering the economy. Even without any Trump effect on the value of the dollar, sterling volatility remains in play.