Lira Tumbles After Zarrab Confirms Erdogan Approved "Secret Iran Gold" Trade

In somewhat of a worst-case scenario, Turkish-Iranian gold trader Reza Zarrab just confirmed that Turkish President Erdogan approved the "secret Iran gold" trade that enabled Iran to evade US sanctions.

Full Zarrab quote:

"What I’m saying is that the prime minister at that time period Recep Tayyip Erdogan and minister of the treasury ... had given orders to start doing this trade."

The immediate reaction is clear.

Citi"s FX desk explains why Turkish markets are watching the US trial of a banker so closely.

The basics: The US government has accused Turkish banker Mehmet Hakan Atilla of helping Iran evade US sanctions.

 

Turkey’s former economy minister, Zafer Caglayan, and two other banking executives, have been charged in absentia but Atilla is the only one on trial.

 

Why it matters: It"s about the implications this has for US/Turkey diplomatic relations. Bloomberg has a good explainer here: ‘The focus will be on whether [Zarrab] implicates Turkey’s banking system or the highest levels of its government.’ The worst case scenario would hypothetically be where the trial results in diplomatic penalties to Turkey and its banks.

 

An October 30 document submitted to the court by federal prosecutors in New York said that the US “anticipates that the evidence introduced at trial will show that Turkish government and banking officials were integral to the sanctions evasion scheme.” Still, it’s too early to tell, and we watch the wires closely for the latest developments.

And throwing Erdogan under the bus is likely as serious as it gets.

*  *  *

By way of background, we previously detailed... While long forgotten for some, in the summer of 2014, we reported in detail on what appeared to be the biggest, most bizarre money-laundering scheme ever, involving Turkey trading "200 tons of secret gold" with Iran...

The topic of Turkey"s Oil-for-Gold "deals" has not been far from our thoughts over the last few years (here, here, and here) but as Bloomberg reports, after accessing a report leaked on March 14 of a network that spanned Turkey, China, Dubai and Iran, the plot reveals "one of the most complex illicit finance schemes [prosecutors] have seen." It included the classic money-laundering techniques of over-invoicing and false invoicing (exactly as in the case of the Chinese commodity financing scandal underway) but the secret government plan to juice Turkey"s exports goes much deeper; and if you think that the exposure of this scheme is slowing Turkey"s manipulation, think again. Turkey’s trade balance continues to fluctuate unpredictably as gold stocks flow out of the country in bursts.  “Turkey’s going to continue it,” the Turkish economy minister said. “If those casting aspersions on the gold trade are searching for immorality, they should take a look in the mirror.”

 

We first started noticing major "odd" exports of gold from Turkey to Iran in May 2012. But in 2013, with a plunging currency, surging inflation, slowing growth, and specter of rapid QE-driven hot money outflows leaving his nation desperate; Zafer Caglayan, the minister in charge of Turkey"s $800 billion economy decided that the only way to ensure success in the looming election... was to cheat...

 

Read more here...

A farcical domestic investigation was undertaken and while the judges and officials who probed the money laundering scheme were either fired or reassigned, the findings in their report were leaked.

The leaked document that Erodgan tried so hard to hide, prepared by the Turkish National Police, shows that investigators probed the activities of a cast of characters that was both powerful and dependent upon each other for favors. There have been some arrests (but no politicians).

The first was Sarraf, the Iranian businessman, who changed his name from Reza Zarrab after he took Turkish citizenship in 2007.

 

He and Erdogan were photographed on stage together at one public function, and met at a wedding in Ankara.

 

After Sarraf was arrested in December, Erdogan told reporters that his gold-dealing had “contributed to the country.”

Then, three years later, Bloomberg reports that Zarrab - the gold trader accused of helping Iran evade sanctions - invoked the name of Turkey’s president, Recep Tayyip Erdogan, as part of a scheme that U.S. prosecutors say was supported by Turkey’s government, according to court documents.

U.S. prosecutors in New York have gathered taped conversations and other records that suggest the trader may have sought support from Erdogan.

 

The Turkish president hasn’t been accused of wrongdoing, and it’s possible that the trader falsely invoked Erdogan’s name to influence others.

 

The people charged in the case are captured in the recorded conversations, which were introduced in a filing in federal court in Manhattan.

 

The documents introduced in the sanctions and money-laundering case against the Turkish-Iranian gold trader, Reza Zarrab, could further complicate the relationship between the U.S. and Turkey, a majority-Muslim country long considered a crucial ally in the region.

And now, the day that Turkish President Erdogan has been most fearful of has arrived, despite his best efforts to block it. Erdogan tried to pressure U.S. officials during the Barack Obama and Donald Trump administrations to drop the prosecution of the trader and has complained in public comments that prosecutors were trying to extract a confession from Zarrab and turn him into an informant. He also claimed President Trump apologized for the prosecution in a phone call.

“Erdogan clearly has a strong personal interest in Zarrab’s case, as he has raised it at the highest levels of both the Obama and Trump administrations,” said Amanda Sloat, a senior fellow at the Brookings Institute and former State Department official overseeing U.S.-Turkey relations.

 

“U.S. judicial proceedings could also hurt the Turkish economy. Since much of Erdogan’s popularity resulted from his successful economic reforms, his domestic political support would be undermined by a downturn.”

AP reports that a U.S. prosecutor says Turkish gold trader Reza Zarrab has pleaded guilty to charges and will reveal at a New York trial how he helped Iran evade U.S. sanctions in an "economic jihad."

Turkish Lira, Bonds Plunge After Erdogan Tells Central Bank "It"s On The Wrong Path"

Turkish lira plunged near record low 3.9/USD this morning and bond yields spiked over 12.5% for the first time in history as investor anxiety escalated following President Erdogan"s attack on the nation"s central bank, decrying it"s "wrong path."

Currency crisis...

And bond market panic...

As Bloomberg reports, Turkish President Recep Tayyip Erdogan signaled an end to his uneasy truce with the new central bank chief, attacking the institution now run by Governor Murat Cetinkaya for its repeated revisions to economic targets and “wrong path” to tackle soaring inflation.

“They say central banks are independent so we shouldn’t interfere. This is the end result because we haven’t interfered,” Erdogan said in a speech on Friday in Ankara.

 

“Results speak for themselves.”

“We will solve this, things can’t go on like this,” Erdogan said, vowing to step up a fight against what he calls the “interest rate lobby,” an alleged cabal of financiers and lobbyists that he says is conspiring to keep Turkey’s interest rates artificially high.

“We can’t make this a taboo,” he said, rejecting the idea that central bank independence means he shouldn’t comment on interest rate policy.

The comments come as a slew of economic stimulus measures implemented in the wake of a 2016 coup attempt have helped push growth up while driving core inflation to 11.8 percent in October, the highest since 2004.

“We’re back at Erdoganomics 101,” said Cristian Maggio, head of research at TD Securities in London.

 

“I would have expected him to start shouting at the central bank only once the lira was on a more solid footing versus the U.S. dollar and euro. We’re clearly not there yet, so that makes me think that he’s more concerned about growth, a concern that we share.”

Caught On Video: Americans Beaten By Erdogan Supporters In New York City

Once again supporters of Turkish President Recep Tayyip Erdogan have roughed up American protesters on American soil. As Erdogan delivered a speech to supporters in New York City at the Marriott Marquis in Times Square on Thursday, a handful of protesters began holding up signs and yelling anti-Erdogan slogans. Men in black suits immediately rushed the protesters and began violently removing them while the crowd punched and shoved those being carried out.

Video released by Turkish media present at the event clearly shows at least two of the protesters being repeatedly punched in the face by Erdogan supporters as they were taken out of the room. And it appears that Erdogan actually encouraged the violence from the podium, calling the protesters - which included Americans - "terrorists". 

Violence erupts at an Erdogan speech Thursday: After American protesters were beaten by Erdogan supporters, he called the protesters "terrorists" from the podium (see 1:40 mark). 

#Erdo?an’? New York’ta Protesto Edenlere Yaka Paça Müdahale https://t.co/xqKyXuGIN1 pic.twitter.com/PrhSxsXCZv

— Amerika"n?n Sesi (@VOATurkish) September 21, 2017

The disruption appears to have started when Lucas Chapman - a young American activist and former YPG volunteer fighter (Kurdish "People"s Protection Units") - yelled out in the middle of Erdogan"s speech: "Murderer! You"re a terrorist, get out of my country!"

American former YPG volunteer protests during Turkish dictator speech: "You"re a terrorist, get out of my country". pic.twitter.com/lHwTBn1426

— Afarin Mamosta (@AfarinMamosta) September 21, 2017

Video shows Chapman immediately being shoved to the ground from behind, just before being seized by what appear to be security guards, though it"s not confirmed if any of the guards were part of Erdogan"s presidential security detail. Chapman was punched in the face by an unidentified man wearing a suit before disappearing off camera as he was carried out of the room.

NEW ANGLE: @RT_Erdogan thugs beating protester today at NYC rally! @ANCA_DC #Turkey #Turkish #Erdogan #StopErdogan pic.twitter.com/NmdhU2pIVj

— ANCA (@ANCA_DC) September 21, 2017

Chapman told Zero Hedge that the moment the protest began, he was assaulted by the crowd. "Erdogan"s supporters jumped on me almost immediately, shoving me out of my chair and eventually throwing me to the floor," he said. "They kicked and punched me repeatedly until the security guards lifted me and dragged me out. As I was being dragged out, Turks leaned into the aisle and continued punching me in the head and stomach."

Chapman is uncertain whether or not Erdogan"s body guards were directly involved as he says his face was quickly pressed to the floor and was thus unable to see while being beaten in the initial moments of the event. There were seven protesters total in the group and they escaped with only minor injuries. 

The ordeal caused Erdogan to pause his speech while the entire room erupted in pandemonium as body guards rushed through the crowd. The Turkish president leaned over to one of his aides in confusion and was visibly angry while glaring out at the audience.

Erdogan protested during his speech in New York. He asks his goon: Who are these?
The goon replies: Americans, sir. pic.twitter.com/84qYmyIlhN

— Gilgo (@agirecudi) September 21, 2017

Another man, carried out after Chapman, was shown on video being viciously assaulted by Erdogan loyalists waiving Turkish flags. Footage shows the man initially on the ground being kicked while what appears to be hotel security attempted to hold the crowd back. The protester was repeatedly punched in the face while being escorted out.

In addition, Erdogan seems to have encouraged the violence in the very moments it was taking place by calling the protesters "terrorists". Erdogan announced from the podium: "My dear brothers, my dear brothers, my dear brothers, I have an important request from you: don"t let three to five impertinent people, three to five hall terrorists ruin our lovely gathering."

Video from another angle shows Erdogan"s guards beating up an American protesting him during his speech in New York. pic.twitter.com/ALkeYIfDfC

— Turkey Untold (@TurkeyUntold) September 21, 2017

Referencing a familiar theme, Erdogan"s speech singled out the predominantly Kurdish Syrian Democratic Forces (SDF) and the Gülen movement as "terrorists" while equating both groups with ISIS. Thursday"s violence follows a major incident last May in which at least 12 people were seriously injured after Erdogan"s personal security detail attacked peaceful protesters outside the Turkish Embassy in Washington DC. Turkey has a history of aggressively cracking down on both protests and journalists, especially in relation to Kurdish issues. US federal indictments have been issued for 15 of the Turkish security officials involved in the May attacks, which occurred on American soil. 

Meanwhile, it appears that Erdogan was caught lying about the May incident this week. He claimed in an interview on Monday that Trump personally apologized to him for the violent encounter, which Turkey blames on Kurdish groups and DC police: "President Trump called me about a week ago about this issue. He said that he was sorry, and he told me that he was going to follow up on this issue when we come to the United States within the framework of an official visit." However, the White House denied that any apology had been issued over the embassy violence.

On Wednesday the Turkish president shocked an audience at the Bloomberg Global Business Forum in New York when he said that the hundreds of journalists currently imprisoned in Turkey after a recent crackdown on government critics are "not journalists, they"re terrorists." When asked by Bloomberg News editor-in-chief John Micklethwait why his country has put more journalists in jail than any other nation, Erdogan responded, “The ones who have been sentenced, who have been imprisoned, are not journalists." He then made the bizarre claim that, "Many have been involved in burglaries and some have been caught red handed as they were trying to empty ATM machines.” And added, “Everyone else seems to think they’re journalists just because they say so."

Turkey has recently topped the list of countries routinely engaged in Twitter censorship and has over the past years completely blocked social media platforms nation-wide at various times. 

All of this causes us to ask: how long before both American leadership and the media begin acknowledging Erdogan for the thuggish tin pot dictator that he truly is? Apparently, he"s no longer content to crackdown on speech in his own country, but now willingly sics his fanatical mob even on Americans exercising free speech on American soil.

Turkish Authorities Top For Twitter Censorship

Twitter has evolved to become an important outlet for political discussion, debate and commentary. The platform was notably put to use to successfully organize anti-government protests on numerous occasions, and as Statista"s Niall McCarthy notes, this put some world leaders on edge, unsurprisingly leading to some countries clamping down on the network"s content.

Twitter"s latest transparency report shows the number of content removal requests made by different countries as well as the share that were granted.

You will find more statistics at Statista

In the first six months of 2017, Turkey was the most controlling of Twitter content, making nearly 2,000 removal requests between January 01 and June 30. 11 percent of those requests were granted to some extent.

Turkish authorities detained thousands of people after last July"s failed coup with President Tayyip Erdogan clamping down on what he percieves as illegal online activity for years.

Russia also has a long history of attempting to silence Putin critics and it comes second, making a total of 1,213 removal requests up to June 30th.

In the first six months of the year, 90 percent of all removal requests came from just four countries - Turkey, Russia, France and Germany.

Turks Panic-Buy The Most Gold Ever In July

A funny thing has happened in Turkey since President Recep Tayyip Erdogan installed himself as "Sultan for life"...

The Lira collapsed...

And Turks have been importing gold at an unprecedented rate...

As Bloomberg reports, preliminary trade data from Turkey’s Ministry of Customs and Trade showed the deficit widening to $8.8 billion in July.

An eight-fold increase in gold imports to $2.8 billion from $354 million in the same month last year made the precious metal the second-most imported product and one of the main contributors to the trade gap.

June gold imports were also up by 216 percent year-on-year to $2.1 billion, according to final figures reported by Turkstat, the state statistics agency.

The question is - just like in India - how long before Erdogan "dictates" an end to gold imports, imposes tariffs, or confiscates the precious metal?

Erdogan Could Face Arrest In Sweden After Officially Being Accused Of Genocide

Via TheAntiMedia.org,

Marking the first time Sweden - the country - has ever lodged a complaint against a head-of-state, this week five members of parliament (MPs) from the Scandinavian country officially accused Turkish President Recep Tayyip Erdogan of genocide.

The MPs’ complaint alleges Erdogan has committed war crimes, genocide, and crimes against humanity against the Kurdish majority in Turkey’s southeast region since a truce between the outlawed Kurdistan Workers Party (PKK) and government forces fell apart in 2015.

The official complaint was filed in the Swedish International Public Prosecution Offices.

If that department decides to move forward with an investigation, warrants could be issued for the arrest of Erdogan and several other Turkish officials, such as Prime Minister Binali Yildirim.

MP Carl Schlyter says he likes the idea of Erdogan potentially having limited freedom of movement in his part of the world and hopes neighboring countries will follow suit:

“If [Mr Erdogan] is hindered from roaming around in Europe and influencing European countries the way he wants, then I hope that this will affect his politics.”

Such a move against President Erdogan was only made possible by a Swedish law passed in 2014 that allows the country to hold and judge its own court cases involving genocide and crimes against humanity, regardless of where those crimes took place.

“Anyone, who in order to completely or partially destroy a national or ethnic group of people” kills or causes serious pain or injury is “guilty of genocide,” the legislation reads.

The PKK, which originally sought an independent homeland for Turkey’s 15 million Kurds, launched its insurgency back in 1984. Since that time, an estimated 40,000 people, mostly Kurds, have died in the conflict.

Turkey Refuses To Grant Germans Access To Incirlik Airbase

While Angela Merkel is busy sowing the seeds of the next cold war between Germany and the Trump administration (and therefore the US, if only for the next three and a half years), a troubling flashpoint for Germany continues to grow in Turkey where on Tursday, Turkey"s foreign minister said it is not possible to allow German lawmakers to visit troops stationed at Turkey"s Incirlik air base now, although he said Ankara may reconsider if it sees "positive steps" from Berlin. It was not immediately clear just what Turkey"s "demands" or expectations, monetary or otherwise, were from Merkel for it to change its view.

"We see that Germany supports everything that is against Turkey," Mevlut Cavusoglu told a news conference in Ankara. "Under these circumstances it is not possible for us to open Incirlik to German lawmakers right now ... If they take positive steps in the future we can reconsider."

Turkey has prevented German lawmakers from visiting the roughly 250 troops stationed at Incirlik as part of the U.S.-led coalition against Islamic State, saying that Berlin needs to improve its attitude first.

According to Reuters, Cavusoglu also said the issue would be discussed with German Foreign Minister Sigmar Gabriel, who is due to visit Turkey on Monday. Ties between the NATO allies deteriorated sharply in the run-up to Turkey"s April 16 referendum that handed President Tayyip Erdogan stronger presidential powers.

The recent deterioration in relations between Germany and Turkey developed when Germany, citing security concerns, banned some Turkish politicians from addressing rallies of expatriate Turks ahead of the referendum, infuriating Erdogan. Ankara responded by accusing Berlin of "Nazi-like" tactics. Germany has also expressed concern about the widespread security crackdown that followed last year"s failed coup in Turkey. More than 100,000 people have been sacked or suspended from their jobs and more than 40,000 people jailed.

German officials said this month that 414 Turkish citizens with diplomatic passports and other government work permits had requested asylum since the attempted putsch. Berlin"s interior ministry has confirmed that asylum requests had been approved for a number of the applicants, a move that angered Ankara.

Followup: Erdogan Chills Nearby While His Bodyguards Assault Embassy Protesters

Yesterday we reported on a brawl that took place outside of the Turkish Embassy housing in Washington DC in which a bunch of pro-Erdogan goons assaulted a few dozen human rights protesters.

Nine people were injured, two seriously, and two arrests were made.

  

The attackers were originally reported as "Erdogan supporters," however it was fairly obvious Erdogan"s security detail was involved...

And today video emerged of Erdogan chilling by his Benz while his guards go to town on the protesters. And what are the chances they did that without Erdogan"s permission - or on his order?

New video shows Turkey"s Erdogan watching members of his security detail attack Kurdish protesters outside of the Turkish embassy in D.C. pic.twitter.com/OsnWUJD7EW

— Josh Caplan (@joshdcaplan) May 18, 2017

Content originally generated at iBankCoin.com * Follow on Twitter @ZeroPointNow

Iranian TV CEO Assassinated In Istanbul

The founder and CEO of Iran"s satellite TV network Gem TV, Saeed Karimian, 45, who in 2016 was tried in absentia and sentenced to six years in prison by a Tehran court for "spreading propaganda against Iran", was shot dead in Istanbul.

According to Dogan News, Karimian - identified by Hurriyet as a British national - and a Kuwaiti business partner were driving in Istanbul"s Maslak neighborhood after 8 p.m. (1.00 p.m. ET) on Saturday when their car was blocked by a jeep and shots were fired. Karimian died immediately after the gunmen - who were reportedly masked - opened fire on the vehicle. As Reuters adds, Karimian was found dead by emergency services arriving at the scene while his associate was taken to a hospital where he too passed away.

Two masked shooters got out of the jeep before opening fire, Hurriyet said. The jeep was later found abandoned and burned. Turkey"s Dogan news quoted the mayor of Istanbul"s Sariyer district as saying initial police findings suggested the shooting may have prompted by a financial disagreement involving Karimian.

In a statement on its Facebook page, GEM TV confirmed Karimian had died but without making clear the circumstances of the death.

GEM TV is known for entertainment satellite channels that dub foreign films and western programmes into Farsi for Iranians. It also produces movies and TV series. It has been criticized by Iran for showing programmes which go against Islamic values and has been accused the channel of spreading Western culture. As Reuters notes, "the satellite broadcaster"s programing has angered authorities, who view it as part of a cultural "soft war" waged by the West."

While satellite television is popular in Iran, owning a satellite dish is illegal the Guardian adds. Police and security forces occasionally smash dishes and seize receivers as authorities routinely denounce the western pop culture shown on satellite channels as decadent and un-Islamic.

Iranians use satellite dishes in order to watch foreign channels

Last year a Revolutionary Court in Tehran tried Karimian in absentia and sentenced him to six years in jail on charges of "acting against national security" and "propaganda against the state".

Family members told the BBC"s Jiyar Gol that Mr Karimian had been threatened by the regime the past three months, and as a result was planning to leave Istanbul and move back to London. However, BBC sources have suggested the killing may be related to business and gangs.

Gem Group was initially established in London, but later expanded to Dubai. According to the group"s website, it has 17 Persian-language channels, plus one each in Kurdish, Azeri and Arabic. Iran’s semi-official Tasnim news agency, considered to be close to the country’s hardline paramilitary Revolutionary Guard, described GEM as an opposition network and said Karimian had been given a prison sentence for “propaganda”, without elaborating.

The assassination took place on the same day that Turkish president Erdogan - now with virtually unlimited executive powers following the recent constitutional referendum - blocked Wikipedia, banned TV dating shows, and purged another 4,000 state workers for their "affiliation" with the Turkish "shadow state" alleged controlled from rural Pennsylvania by the 76-year-old cleric Fethullah Gulen.

Erdogan Poised For Victory Based On Early Referendum Results Although "Yes" Lead Is Shrinking

Update 4: 95.5% of the vote is in, and Yes is down to the lowest lead so far, 51.6$ vs 48.4%.

* * *

Update 3: With 93% of the vote in, Yes is down to just 52%.

* * *

Update 2: with over 75% of the vote counted, the "Yes" has 54.2% of the vote, versus 45.8% for the "No" and rising.

RESULTS: Turkish referendum, 76% counted.

Yes: 54.2%
No: 45.8%

— The Spectator Index (@spectatorindex) April 16, 2017

* * *

Update: it may be closer than expected after all, because as votes continue to trickle in, the Yes margin continues to erode, and with 61% of the vote counted, Yes is now at 56% versus 44% for No.

Turkey: Constitutional Referendum

If trend continues:

No (Hayir): 51.3%
Yes (Evet): 48.7%#Turkeyreferendum #Turkeyvotes pic.twitter.com/cbn82FT0SA

— Europe Elects (@EuropeElects) April 16, 2017

TURKEY: While "Yes" vote leads with 56% of the vote (61% counted), its lead has been falling gradually as votes have been tallied.

— The Spectator Index (@spectatorindex) April 16, 2017

* * *

As previewed yesterday, on Sunday Turks voted on a referendum on the country"s presidential system whose outcome will likely place sweeping new powers in the hands of President Tayyip Erdogan and herald the most radical change to the country"s political system in its modern history. The package of 18 amendments would abolish the office of prime minister and give the president the authority to draft the budget, declare a state of emergency and issue decrees overseeing ministries without parliamentary approval. Effectively, Erdogan would become the closest thing to a despot possible in a "democratic" system.

For those who may have missed it, we urge readers to skim the preview, especially since the outcome appears to be largely decided, and according to Turkish media which appears to have broken the news embargo, with over 30% of the votes counted with a turnout of 87%, the pro-Erdogan "Yes" camp is set for a victory, as close to 60% of the votes allegedly support the proposed political system overhaul.

Turkey, 30% counted:

Constitutional Referendum

Yes: 61.8%
No: 38.2%#Referandum2017 #Turkey pic.twitter.com/zXqSWGezR6

— Europe Elects (@EuropeElects) April 16, 2017

First results from Turkey"s referandum,17.54 local time: 62.2 % YES, 37.8 % NO, with 29,1 % of votes counted https://t.co/9K9TQPY6Vs

— CNN Türk ENG (@CNNTURK_ENG) April 16, 2017

       
         

While we expect allegations of vote-rigging to emerge, especially in light of recent polls which showed a much closer margin between the "Yes" and "No" camps, we doubt there will be much political push from Turkey"s European "partners", especially since Erdogan still holds the trump card of releasing over 2 million Syrian refugees in Europe"s general direction should his now virtually supreme powers be disputed by Brussels or Berlin.

As for the market, as Barclays reported yesterday, it will likely take a Yes vote favorably, as it will mean little to no change in the Turkish political system.

As a reminder, from Barclays this is what a "Yes" outcome would mean for markets:

YES: A “yes” outcome would likely result in a broad-based, yet potentially short-lived, relief rally

Despite the market’s anticipation of a “yes” outcome, we think the associated reduction in near-term political uncertainty would likely still deliver some relief rally, allowing a temporary reprieve for the TRY and a steeper curve in anticipation of a “gradual” unwinding of tight liquidity policy.

In FX, still-large TRY political risk premia and undervaluation suggest room for appreciation following a “yes” outcome. While our estimate of the lira’s political risk premia has reduced from 15pp at the end of January, it remains relatively large at 8pp (Figure 6). Furthermore, our short-term Financial Fair Value (FFV) model suggests a 4% undervalued TRY against the USD (Figure 7).

We believe risk-reward argues for being long TRYZAR targeting January highs of 3.90 with a stop-loss at 3.67 for a reward to risk ratio of 3:1 (spot reference: 3.73). We prefer this to short USDTRY as South Africa’s similarly low risk-adjusted real interest rate differentials and heightened political risk should provide a degree of protection in the event of a “no” outcome. The trade also remains positive carry.

In rates, very low bond risk premia suggest a rates rally following a “yes” is likely to be concentrated at the front end of the yield curve as market participants will likely price a gradual unwinding of the CBT’s liquidity tightening measures. As such, we reiterate our existing trade recommendation of paying the 1s5s TRY cross-currency swap spread targeting -30bp with a stop-loss of -100bp.

For Turkey sovereign credit, we maintain our Market Weight rating. This balances our concerns about a likely medium-term deterioration of Turkey’s credit metrics in a presidential system on the one hand with relatively attractive valuations and likely reduced near-term political uncertainty in a “yes” vote on the other hand. In the near term, we see potential for further spread compression of Turkey against South Africa, especially in the 5y sector of the curve (Turkey ‘22s vs SOAF ‘22s), with South Africa remaining vulnerable to adverse developments.

In the corporate credit space, we also have a Market Weight rating on Turkish banks and corporates. In the case of a “yes” vote, we would expect bank seniors to benefit more than corporates given the more significant spread pick-up relative to the sovereign. Higher beta seniors trading at a discount of over 100bp to the sovereign as well as new-style Tier 2s yielding over 7% are likely best positioned to benefit, in our opinion, although this could be met with more Tier 2 supply. We would expect the opposite reaction to a “no” vote, with IG-rated corporates and more expensive bank seniors as well as old-style Tier 2s to be less vulnerable in any sell-off

Turkey Threatens Europeans: You "Will Not Walk Safely In The Streets" If Current Attitude Persists

Having already told Europe "we"ll blow your mind" with a threat to unleash 15,000 immigrants per month,Turkish President Tayyip Erdogan escalated his rhetoric this morning warning Europeans across the world would not be able to walk safely on the streets if they kept up their current attitude.

Tensions have accelerated since Turkey became embroiled in a row with Germany and the Netherlands over the barring of campaign appearances by Turkish officials seeking to drum up support for an April referendum on boosting Erdogan"s powers. Today"s comments are the most aggressive yet...(via Reuters)

"If Europe continues this way, no European in any part of the world can walk safely on the streets. We, as Turkey, call on Europe to respect human rights and democracy," Erdogan said at event for local journalists in Ankara.

As we noted previously, should Turkey execute on its threat, it is likely that the anti-immigrant, populist wave that has swept Europe in 2015 and 2016, and which has subsided modestly in the subsequent period, will find a second, and very dangerous to the European establishment, wind.

Russian Airstrike Accidentally Kills Three Turkish Soldiers In Syria

A Russian airstrike accidentally killed three Turkish soldiers and wounded 11 others during an operation against the Islamic State in northern Syria on Thursday morning, Turkey"s military said in a statement and Moscow confirmed.The head of the Russian General Staff, Valery Gerasimov, said the warplanes were targeting Islamic State sites in the al-Bab area.

Whether indeed "accidental", or payback for the downing of a Russian jet over the Turkish-Syrian border in November 2015 is unclear, but according to Kremlin press secretary Dmitry Peskov, Russian President Vladimir Putin expressed condolences over the accidental loss of life in the airstrike, in a phone call with President Recep Tayyip Erdogan, 

“President Putin discussed… his recent phone conversation with Turkish President Erdogan. Among other things, he said that he expressed condolences to his colleague over the incident that took place early Thursday morning, when Turkish servicemen were killed as a result of incoordination in Russian Air Force airstrikes against terrorists during the joint operation to liberate al-Bab,” Peskov said.

Kremlin spokesman Dmitry Peskov said that Russia and Turkey will jointly investigate the deadly incident. The Kremlin spokesman told Sputnik that Putin told Erdogan that Turkish soldiers had died as a result of non-coordination of coordinates during Russian military jets" strikes in Syria. The Russian and Turkish presidents held a phone conversation earlier on Thursday. Putin expressed condolences to Erdogan over the deaths of Turkish soldiers near Syria"s al-Bab, the Kremlin said earlier. They also agreed to expand military coordination during the operation against militants from Daesh and other extremist groups in Syria.

The Russian Defense Ministry has also confirmed the unintentional strike, killing Turkish servicemen in Syria. The ministry said that Russian bombers had been on a mission to destroy Daesh terrorists" positions near al-Bab, where Turkish soldiers had been accidentally bombed. "Russian bombers have been carrying out a combat mission destroying Daesh positions in al-Bab area. The chiefs of the [Russian and Turkish] general staffs agreed to closer coordinate joint actions and exchange information about the situation on the ground."

Valery Gerasimov held telephone talks with his Turkish counterpart, during which the issues of the fight against international terrorist groups in Syria and the situation in the northeast of the province of Aleppo were discussed.

"Chief of the General Staff of the Armed Forces of the Russian Federation Army General Valery Gerasimov expressed condolences to [Turkish] General Hulusi Akar in connection with the death of three Turkish soldiers operating in the area of ??the city of al-Bab as a result of unintentional strike by a Russian aircraft."

Deutsche Bank Rejects Charge It Is An "Economic Terrorist"

Over the year, Deutsche Bank has been accused - and found guilty - of doing many illegal things (and paid handsomely for it, both in terms of penalties as well as sacked CEOs), but what happened yesterday was new.

As we observed yesterday morning, as part of his latest attack on currency speculators, Erdogan compared FX traders to terrorists, saying that "terrorists with dollars and with weapons have no difference." Furthermore, on Thursday the government friendly daily Yeni Safak reported that Deutsche Bank and other German institutions were attempting “economic terror” against Turkey by recalling loans to companies before their their due dates.

The German lender was not happy, and on Friday Deutsche Bank’s Turkish unit rejected claims that it’s plotting to undermine the economy, and said it’s “unacceptable” for the lender’s name to be associated with terrorism.

“Claims in the story about calling loans before their maturity and conducting operations in coordination with other institutions are totally groundless,” the bank’s Istanbul-based business said in an e-mailed statement Friday quoted by Bloomberg.

Like many other failing regimes, most notably Venezuela, Erdogan and his aides often invoke a conspiracy against Turkey by outside powers when the lira declines, "saying other nations are jealous of the country’s economic growth under his leadership." On Thursday, Erdogan accused Turkey’s enemies of speculating in the lira and again called on Turks to “thwart these games” by selling their holdings in other currencies.

Meanwhile, the one thing that could prop up the crashing currency, a rate hike, has been virtually proihibted by Erdogan who has warned that any such action by the central bank will be rejected by his administration. Erdogan is hoping to boost the lagging economy with cheap loans, however in the process it has sent the currency plunging.

Thursday was not the first time that Deutsche Bank has been singled out by the Turkish press. In January 2014, the German lender denied local reports that it deliberately drove down shares of a Turkish state-run lender that had been implicated in a corruption scandal. Deutsche Bank said most of the shares it processed in that episode were owned by its clients, and it wasn’t trading sufficient volumes to affect the company’s share price. More recently, the Frankfurt-based institution figured in a different way in government rhetoric.

In an amusing interlude, last September, when Deutsche Bank"s shares were plunging, amid capital concerns, Yigit Bulut, a chief adviser to Erdogan, said Turkey should consider buying Deutsche Bank.

“Some very good companies in the EU are going to fall into trouble and we need to be ready to buy a controlling stake in them,” Bulut wrote on Twitter. "Wouldn’t you be happy to make Germany’s biggest bank into a Turkish Bank!!"

As Bloomberg adds, Bulut also criticized Germany’s flagship carrier, Deutsche Lufthansa AG, soon after his appointment in 2013. He said the airline was behind anti-government protests that began in Istanbul’s Gezi Park that summer, because its position in Europe was threatened by plans to build a new airport in Istanbul.

Deutsche Bank, which has been in Turkey since 1987, employs 143 people at its Turkish unit. In the next TRY crisis, it is a distinct possibility many if not all could be arrested on allegations they are conspiring to take down Erdogan, whose authoritarian ways have been mostly ignored by the country"s western friends and allies.

Turkey Warns Citizens About Travel To US Over "Social Tensions", Anti-Trump Protests

Several days after the US Embassy in Istanbul ordered the families of employees to depart, and advised U.S. citizens to avoid travel to southeast Turkey and "carefully consider the risks of travel to and throughout the country", Turkey has responded by warning its citizens on Saturday about travel to the United States, in response to what the foreign ministry called "increasingly violent protests against President-elect Donald Trump."

"Within the context of risks caused by the incidents and of social tension, our citizens who live in the U.S., or who are considering traveling there, should be cautious," the ministry said in a statement.

The advisory said the unrest began after Tuesday"s elections: "Sometimes the protests turn violent and criminal while protesters (are) detained by security forces," the ministry of foreign affairs said Saturday, adding that "racists and xenophobic incidents increased in USA."

"Considering the risks, we advise our citizens living and traveling to US to follow local media, to follow the warning of our embassy in Washington and American security forces, to stay away from protests, to increase their security in work space and to apply to local security when there is a racist or xenophobic attack while keeping calm," the statement added.

Demonstrators across America, some allegedly funded by George Soros-linked organizations, have staged four consecutive nights of protests against Trump, whose election they say poses a threat to their civil and human rights, a day after a protester was shot in Portland, Oregon. 

At the same time, there has been growing tension between the two NATO allies after repeated calls from Turkey to extradite U.S.-based cleric Fethullah Gulen, who Ankara blames for a failed coup in July.

Turkish Prime Minister Binali Yildirim said on Wednesday he hoped for an improvement in bilateral ties after Trump"s victory, and again called for Gulen"s extradition.