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Cristian Maggio, head of emerging markets strategy at TD Securities, points out that Turkey is moving ahead with its northern Syria Operation Peace Spring and international condemnation has followed rapidly.

Key Quotes

“The US and EU threaten sanctions and an arm sale bans. Turkey is defiant and goes ahead, but the consequences of sanctions, if fully enacted, would cripple the weak Turkish economy.”

“The correct market response is higher USDTRY, while rates should be held at the next meeting on 24 October (but we think the CBRT will cut nonetheless). We continue to expect the lira at 6.00 vs USD and higher at 8.30 next year.”

“A sense of growing apprehension is building in the market as tensions rise along the border line between Turkey and Syria. Turkey has launched Operation Peace Spring with the aim of securing a buffer zone about 30km deep into Syrian territory (from the northern border with Turkey) and several hundred kilometers wide (the Turco-Syrian border line is approximately 900km long, running west to east along Turkey’s southeastern flank).”

“Together with the military operation, the first reports of arbitrary executions, the reported killing of a prominent Kurdish politician and human right activist, a possible return of ISIS and hundreds of thousands of civilians fleeing from their homes have also started to emerge, immediately capturing the attention of international media.”