Unstable equilibrium

The global economy is constantly changing and the period we are going through has set in motion profound trends. In order to manage efficiently the economic and health crisis, the European Union (EU) has shown resilience and pragmatism. Proof of this is the agreement reached for a mutual sovereign loan of 750 billion. This deal has brought down many economic taboo’s, the most symbolic being the 3% annual public deficit rule of the Maastricht Treaty.

On the other side of the Atlantic, the United States seems to be bogged down in a health crisis, which became social and then economic. Indeed, between the management of the pandemic, the « Black Lives Matter » movement and the 40 million Americans who are threatened with eviction due to unpaid rent, Donald Trump is experiencing a turbulent end of his mandate with lot of controversial issues. However, the country seems to be getting over it. All eyes now turn to the November presidential election. However, the context of economic recovery does not seem sufficient to explain the continued rise in U.S. equity markets. The Nasdaq and the S&P are currently beating their all-time highs, while the real economy is struggling to regain its pre-crisis level.

The Euro/Dollar pair allow us to assess the economic health of the European and American blocs. Since April, the euro has appreciated by 10% against the greenback. In addition to the events mentioned, the technical analysis confirms its new trend since euro has just broken a long-term downtrend that began at the end of the subprime crisis in 2008.

More locally, the Turkish situation is worrying. Geopolitically, tensions have risen a notch following new gas exploration conducted by Ankara in the Greek territorial waters. Europeans (France/UK) and Americans were quick to react by sending warships to the region. All protagonists are members of the NATO organization, which will facilitate diplomatic discussions are underway. Nevertheless, the Turkish economy is deteriorating. Inflation is currently stable but that remains very high at around 12% annually and the currency is continually devaluing. Over the last decade, the exchange rate has gone from 1.5 to

7.4 against the dollar! Since the beginning of 2020 alone, the TRY has lost almost 25%. Post Covid, a slower than expected recovery could be a severe blow to the Turkish economy. Our current readings and findings push us to be very cautious.

In conclusion, although the returns offered by interest rates are very attractive, playing strategies in emerging currencies such as the Turkish lira does not seem appropriate for us in the view of the current global economic situation. For sophisticated investors, we reaffirm our conviction on precious metals. Finally, for the most audacious ones resonating in USD, after the acceleration of European integration an exposure outside the base currency of around 10% to 20% in EUR and/or CHF seems interesting to us observed and mentioned above.

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