The Turkish central bank increased its overnight rate from 7.75% to 12% last evening in an attempt to support the lira. Initially, this resulted in a huge surge in USDJPY and of course equity futures. This morning sees a roundtrip – perhaps markets realize that 1% a month isn’t enough to curb speculators looking to make 3% a day, besides which the negative effect on the Turkish economy will be severe.
As the Fed tapers, money flows are being disrupted. Emerging markets hooked on Fed largesse will struggle. Turkey and Argentina are just the beginning. Exchange controls and panicky attempts at “shock and awe” won’t work. They just dam up the pressure.