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Cablegate: Powerful Rally On Confluence of Positive News

This record is a partial extract of the original cable. The full text of the original cable is not available.

061545Z Oct 03

UNCLAS SECTION 01 OF 02 ANKARA 006269

SIPDIS


SENSITIVE


STATE FOR E, EB/IFD, AND EUR/SE
TREASURY FOR OASIA - MMILLS AND JLEICHTER
NSC FOR BRYZA AND MCKIBBEN


E.O. 12958: N/A
TAGS: EFIN PREL TU
SUBJECT: POWERFUL RALLY ON CONFLUENCE OF POSITIVE NEWS


REF: A. ANKARA 6001
B. ANKARA 6122
C. ANKARA 6209
D. ANKARA 6231
E. ANKARA 6241


1. (Sbu) Turkish markets rocketed forward on October 6 in
reaction to several bits of positive news over the weekend.
The High Election Council's decision not to invalidate last
year's election, better-than-expected inflation numbers, GOT
movement toward a parliamentary resolution on troops for
Iraq, and premature press reports of progress on the IMF's
Sixth Review combined to send markets forward. The stock
market rose 10.62 percent, interest rates fell over two
hundred basis points to 32.82 percent, and the lira hit TL
1,367,643 per dollar. The stock market level and interest
rates attained are records for 2003. End Summary.


NEW RALLY STARTED FRIDAY:
------------------------


2. (Sbu) Turkish markets' rally paused last week, as
profit-taking and worries about a possible High Election
Council invalidation of the November 2002 election results
(ref B) caused stock prices to ease and the benchmark
treasury bill to stay over 34 percent Monday through
Thursday. Adding to market worries last week were signs of
increasing politicization of the U.S. credit, including
critical comments by military leaders (ref C). On Thursday,
the lira closed above TL 1.4 million to the dollar. On
Friday, October 3, however, the markets returned to their
earlier bullishness, encouraged by continued strong export
data and indications of U.S.-Turkish cooperation on the
PKK-Kadek issue. On Friday, the IMKB 100 stock market index
closed up 2.3 percent, the lira was at 1,395,742 per dollar
and the benchmark treasury bill at 34.97. .


CONFLUENCE OF POSITIVE NEWS OVER THE WEEKEND:
--------------------------------------------


3. (Sbu) Just as the markets closed Friday, the Central Bank
announced better-than-expected inflation numbers for
September. The Consumer Price Index was up 1.9 percent, and
the Wholesale Price Index increased only 0.1 percent. The
good inflation numbers are to a large extent attributable to
the strong lira. However, these numbers reinforce earlier
indications and private comments to Emboffs from key GOT
officials that the full-year CPI numbers will hit the IMF
program's 20 percent target and that full-year WPI numbers
could beat the target.


4. (Sbu) On Saturday, the High Election Council removed a big
worry by ruling that it would not invalidate the results of
the November 2002 elections. Press reports over the weekend
and Monday morning also suggested that the GOT was moving to
ask Parliament for authorization to contribute Turkish troops
to the Iraq stabilization force. Since any such troop
contribution would help U.S.-Turkish relations, this was an
additional positive for markets. At the end of the day, the
GOT announced it was submitting a motion on trooops to
parliament this evening.


6. (Sbu) One local newspaper prematurely reported in its
Monday morning edition that the GOT was near agreement with
the IMF mission currently in town to work on the Sixth
Review. Whether or not markets put much stock in this
report, several newspapers reported that the 2004 budget was
sufficiently prepared to be presented to the GOT's High
Planning Council, and that the budget included ambitious and
IMF-blessed macroeconomic targets: a 6.5 percent primary
surplus, 5 percent GDP growth and 12 percent inflation on a
CPI basis.


MARKETS JUMP ON MONDAY:
----------------------


7. (Sbu) With all this good news, and nothing negative to
slow down the bulls, the markets surged forward at the
opening. By the close, the TL was at 1,367,643, the IMKB 100
was up 10.62 percent to 15,719 and the benchmark treasury
bill had fallen over 200 basis points from 34.97 percent at
the closing Friday to 32.82 percent. In addition to being
records for the year in the stock and Treasury bond markets,
the benchmark interest rate was at its lowest level since
pre-crisis August 2000. In fact, in 2000 the benchmark was
only a six-month maturity, making the current twelve-month
benchmark interest rate's relatively low level that much more
impressive.


EDELMAN

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