Robin Brooks

At the ECB Watchers conference - @WielandVolker - there was talk that the ECB is out of bullets, so that Fed easing could result in the kind of Euro appreciation that happened to the Yen in 2008/9. Tiering was seen as an admission that even the status quo of easing is in trouble.pic.twitter.com/NyWmupYywW

Turkey's growth is heavily influenced by 2 large credit expansions, the first in 2017 & second now. My impression is that international capital markets would like a shift away from this credit-dependent growth model after the elections. Such a signal would enhance Lira stability.pic.twitter.com/53270d1g5y

Many say Turkey is idiosyncratic, i.e. doesn't carry much signal for other EM. I disagree. Recent Lira volatility reflects unwillingness in international capital markets to fund heavily credit-dependent growth, a much broader issue across EM where the growth model needs to changepic.twitter.com/VxDJy2iP5i

Within Turkey, most welcome the Q1 rise in state bank lending, since it helped stabilize GDP at a difficult time. Outside Turkey, investors are critical, since this lending push deepens the dependence of activity on credit. This disconnect is at the heart of recent Lira weakness.pic.twitter.com/4xiNVBwatp

The world is less friendly towards emerging markets that depend on foreign capital inflows. This shows clearly in our tracking of non-resident portfolio flows into EM stocks and bonds. 2018 was the weakest year since 2009, weaker even than 2016 when there was the RMB deval scare.pic.twitter.com/QMixhjf5ii

Our daily tracker of real money flows to EM is complete for Q1 2019: (i) a bounce from 2018, but distribution of flows unequal, with only few places (like Indonesia) benefiting; (ii) each peak lower than before due to the growing EM positioning overhang after a decade of QE.pic.twitter.com/wNFaMkCKFw

External funding markets were difficult for EM in 2018 and are staying that way in 2019. The victim - unfortunately - is growth, with activity levels falling as a result. The way forward for EM is to reduce dependence on external capital & embrace domestic, growth-positive reformpic.twitter.com/Sxu8xlKgFC

Countries that see BoP "sudden stops" similar to what Turkey suffered in 2018 see GDP contractions of 7-10 percent peak to trough. Rising state bank lending will buffer activity in Q1, but we are now in a second "sudden stop" that will further weigh on growth in the rest of 2019.pic.twitter.com/YyxmpAT3Hd

Fed & ECB shifted dovish, but EM currencies are falling anyway. 2018 taught us the world is tougher for EMs in need of external funding, as years of QE left many investors with an EM position overhang. Dovish shifts from the Fed can't reverse that & thus don't pack much punch...pic.twitter.com/mwnjB40ASF

Turkey's election uncertainty factors into recent stress on the Lira, but the real issue is growth. Strong credit-driven growth in 2017 was too much for foreign markets to finance, bringing about a BoP sudden stop. The Q1 credit impulse is a repeat with another sudden stop now.pic.twitter.com/UPVSwHJB8D

Turkey last summer suffered a "sudden stop" in the balance of payments, which shifted the current account from deficit into balance at unprecedented speed. Recent stress on the Lira - basically another sudden stop - will take the current account into surplus, a plus for the Lira.pic.twitter.com/dOhBwDXkHM

Decomposing 10-year Treasury yield (white) shows how aggressively markets are trading a negative growth shock. Break-even inflation (orange) flat, but real rate (yellow) down sharply. Has the Fed's recent dovish shift fanned this growth angst (i.e. they know something we don't)?pic.twitter.com/eiogIsCghE

I'm at the ECB Watchers Conference today, thanks to @WielandVolker who's put together a great program. It takes me back to 2014, when EUR/$ fell from 1.40 to near parity on expectations of QE. Despite weak activity & low core inflation, I see a central bank essentially on hold.pic.twitter.com/1FJCcyCn9a

Right now, EM exchange rates are an imperfect gauge of stress in the system, because countries mount an interest rate defense. Factoring in rate differentials, the stress is high, including in Argentina where the currency is weakening despite a 12-month rate differential of 50%.pic.twitter.com/Gfhfp5P4MU

The Fed made a remarkably dovish shift & US-China trade tensions are fading. But EM currencies are under pressure everywhere. Why? A decade of huge capital flows to EM, pushed by loose G-3 monetary policy, has led to an EM positioning overhang. The dovish Fed can't change that...pic.twitter.com/UJWedLfQM4

Why has the Turkish Lira come under pressure? There's the upcoming elections. But the real reason is macro. A big Q1 rise in credit undid some BoP adjustment since 2018, with the trade deficit up again. The credit rise in turn is about growth, which markets are unwilling to fund.pic.twitter.com/SjRjChytW8

Turkey's current account & balance of payments have adjusted hugely since last summer, so why another sudden stop now? The underlying issue is international capital markets are unwilling to finance the growth targets desired domestically. So the underlying issue is about growth.pic.twitter.com/lFuXWdUAfN

The Turkish Lira has stabilized and is back below our fair value of 5.50 for $/TRY. But the underlying reality is that Turkey is suffering its second sudden stop in less than one year. Interest rates are up to levels seen during last year's sudden stop and will weigh on activity.pic.twitter.com/L1U5b6vCfG

Moves in $/TRY mirror on a smaller scale the spike on Aug. 13, 2018. Back then, the macro fallout was a jump in interest rates, which hit domestic demand & shrank the current account deficit, stabilizing the Lira. Dynamics look similar now and our $/TRY fair value remains 5.50.pic.twitter.com/Ur97x9SfgT

The 2018 EM sell-off felt like lots of idiosyncratic episodes, which happened to coincide. And no doubt Turkey and Argentina are different. But the underlying reality is that the world is a much tougher place for any EM that depends on external financing. That's the common theme.pic.twitter.com/0HOUia67La