‘Mechanical’ failure in the stock market does not last long

Economist Ali Ağaoğlu and journalist Hakan Güldağ discussed high wavelength movements in the stock market in Chance Talks this week. The duo especially evaluated the banking stocks by referring to the ‘Hunt brothers’ story. Ağaoğlu described the latest pricing as a ‘mechanical’ failure and said that the market would stabilize in a short time.

While Güldağ emphasized the over-expected core inflation in the USA, Ağaoğlu noted that a 100 basis point rate hike is not on the table. Ağaoğlu, who thinks that OPEC+ will defend the gold of $90 in oil, drew attention to the fact that silver has started to display a more positive outlook than gold.

Guldag: The US inflation exceeding expectations brought along a sharp downward wave in the markets in the middle of the week. There is not a big difference in the CPI, which came to 8.3 percent, but the increase in core inflation from 5.9 to 6.3 seems to be a catalyst in sales. Question marks have emerged once again about the return from the peak in inflation. Discussions about whether the Fed would not give up 75 basis points in life after that, or even increase it to 100 basis points, started with one side. Price increases will continue, as expected, it is thought that there will not be a decrease in the first quarter of 2023. It is likely that the Fed’s interest rate will come to 4-4.5, the American 10-years will remain high, which will adversely affect the stock markets.

Ağaoğlu: 75 basis points seems certain in the decision to be announced on September 21. 100 basis points would be the Fed’s self-denial. It is confusing when the bank started with 25 basis points and went up to 100 instead of 75. An increase of 75 basis points is OK, but 100 basis points raises the question of “what’s going on” and the probability of a picket brake increases. He doesn’t want that to happen either.

Guldag: So you think 100 basis points is not on the table…

Ağaoğlu: I do not think so. The Fed’s free money policy has a major contribution in getting things to this point. When supply shocks were added to this, inflation went wild. Yes, commodity prices have declined significantly, but risks remain. There are not many steps in the world to correct supply shocks. Natural gas and, accordingly, on a European basis energy continues to be a very serious problem. In the meantime, I think that Germany will sit at the table with Russia either directly or in the presence of the countries called proxy, which will do this job on its own behalf. This is just a guess, not a determination.

Guldag: I don’t think Germany will be very enthusiastic about sitting at the table. This presents a window of opportunity to reduce its dependence on Russia. I think that Germany, and especially Europe, which intends to realize the energy transformation, will feel a little cold and suffer, but will also use this opportunity. I don’t think they will bend too much for him. Of course we will watch and see.

Ağaoğlu: Let me add something to this topic. Natural gas prices in us have become very cheap compared to Europe. Of course we are subsidized. But since it is very high in Europe, the natural gas price in us makes Turkey advantageous. This will put us ahead of the competition on the European side. This advantage should be used well. For this, we need to solve the internal problems, especially the issue of access to finance.

Guldag: We were talking about the negative effects of the problem of access to finance. The footsteps of the slowdown in the economy are coming. Industrial production fell by 6.2 percent. The retail front is also troubling. In our conversation with the industrialists in İkitelli, access to finance was once again mentioned as the number one problem. Last time, we shared the opinions of the experts on what to do. I’ll leave it here.

Ağaoğlu: There is a very confusing chart. There have been 13-14 different regulations in banking since the beginning of the year. I guess they go with an average of 2-2.5 per month. These are major arrangements, and there are minors as well. If we add them, this average is more. Gotta stop a bit now. In other words, we need to enter a process where these stones can fall into place and which will continue calmly.

Guldag: So hard. Because a regulation leads to new complaints. To eliminate new complaints, the new regulation breaks another place. I think it’s turned into a spiral. You just mentioned the advantage of natural gas. It seems that Turkey’s luck stands out in almost every field that uses energy. In the meeting we held with Türk Cement in İzmir, this issue came to the fore. As a result, it is necessary to make good use of the opportunities that arise in many sectors such as cement, iron and steel, and aluminum. For this, we need to get rid of this spiral within ourselves.

Ağaoğlu: We’ll wait and see…

Guldag: After the serious rises in Borsa Istanbul, there was a hard sale this week. Bank shares, which have made a premium of 200 percent since the beginning of the year and have gone to the ceiling in recent days, have become the base. No solid reason could be found for this breathless rise, but futures are said to have played an important role. It is said that margin closing calls triggered sales after leveraged transactions and high arbitrage. It’s been an interesting week in terms of pricing.

Ağaoğlu: In futures contracts, when you take a long position in a large futures contract by depositing a small amount of collateral, there are those who take the same amount of short positions. When they added long positions at new and higher prices on top of those long positions they took, those holding short positions in the open had to deposit much more collateral. This is like the ‘Hunt brothers’ story. Guarantees have increased. Since they increased both the long and short positions, there was probably a problem of raising collateral for those who took this job up by carrying long position in the first place. In the past, only openers had to raise this collateral, but this time it has become obligatory for those holding long positions to deposit collateral. The current thing is, I think futures contracts and stocks photo of the imbalance between

Guldag: When do you expect it to stabilize?

Ağaoğlu: There has been a balancing act with sales in the last two days due to collateral. It is difficult to say anything clear because short-term technical analysis cannot be done properly. But collateral structures usually recover within 2-3 days. If it doesn’t improve, one day there will be a very hard sale, everything will fall into place. After that it rebounds after that hard sell. Most likely that hard sell came the day before. Due to the need for collateral, his aftershocks are driving. Chances are it will stabilize somewhere after a few sessions.

Guldag: So what do you think in the medium term? exchange for?

Ağaoğlu: I think that the stock market will still remain a good alternative in an environment where inflation and interest balance are so absurd. I was already seeing this output as an anomaly and I called this process mechanical failure. In other words, maybe 1-2 stocks could rise on their own, based on a rumor or fake news. But a major trend change or mechanical failure is required for a rise in such a block, especially in banking. What I call mechanical failure; the imbalances between forward contracts, short and long positions and their corresponding stocks, and the disappearance of the balance that would provide this balance. Now the mechanical failure will gradually break and spill. We will install a new mechanism in its place, and we will continue with that mechanism. A market that will settle in a certain price equilibrium.

It’s hard to make a permanent drop in oil

Guldag: It is expected that high interest rates will trigger a recession in the USA, which will reduce oil demand. On the one hand, there are risks in China. The International Energy Agency also lowered its global oil demand forecast for this year.

Ağaoğlu: I don’t think a major global recession is priced in yet. Had it been priced in, the declines in industrial metals would have been much harder and more difficult to recover. We do not see them. Likewise oil side has regressed a bit with the stock data in America, but it is difficult to be permanent. Below $90, OPEC+ will most likely defend. Meanwhile, the conflict on the Azerbaijan-Armenia border is a very unpleasant situation. A concern such as “Is there an attempt to create small troubled areas around Russia” begins to form in me. This process should be watched carefully.

Silver and gold recover despite Fed

Guldag: How do you interpret the movement of silver and gold in the week when the Fed is priced; silver is like one step ahead…

Ağaoğlu: In the last two weeks, silver has outperformed gold. this is a good one news. A gold outlet that silver doesn’t precede or support doesn’t work anyway. Silver was cheaper than gold, as a matter of fact, the silver-gold parity came from 96 to 87.20. In other words, while giving 1 ounce of gold last week and 96 silver was bought, today you can only buy 87.2 ounces of silver by giving 1 ounce of gold. Which is an indication that silver is rising better than gold. Silver is still cheaper than gold and will go a little further when there is a move. Silver has reached as many as 20 in the last week. However, it is likely to regress a little. In other words, it can go down to 18.70, 18.80. Unless gold falls below 1680, silver and gold are likely to recover a little in the coming period, despite the Fed.