Tesla hit with dependability rating in new study
A rapprochement with Turkey makes sense, but several obstacles remain
On the whole, cars have become more reliable over the past several decades. The average age of an automobile on the road in America is almost 12 years. That rises almost every year.
The gulf between the quality problem of cars made in Detroit and the better workmanship of Japanese and German cars has closed. Cars made in South Korea were hardly available two decades ago. Now, two are among the largest companies in the United States, and each has a strong reputation for quality products.
When consumers are asked why they pick one car above another, several factors are almost always present. Often at the top of the list is price. Gas mileage is often another. The conversation quickly moves to what features people want. Overarching all of this, however, is whether a car is considered well made. Research firms probe that differently, but usually the terms come down to “reliability” and “quality.”
The gold standard of research about reliability is the J.D. Power U.S. Vehicle Dependability Study, the 2021 version of which has just been released. This study has reached its 32nd year. The goal of the research is to find out how many problems car brands have per hundred vehicles owned. In the dependability survey, researchers looked at that factor for cars that are three years old. That means this study looks at 2018 models.
The survey covers 177 potential problems. They are grouped into these large categories: audio/ communication/ entertainment/ navigation (ACEN); engine/ transmission; exterior; interior; features/ controls/ displays (FCD); driving experience; heating, ventilation and air conditioning; and seats.”
The good news for car buyers is that the industry’s dependability continues to improve. Dave Sargent, vice president of global automotive at J.D. Power, said, “Today’s three-year-old vehicles are of higher quality and more dependable than in previous years.”
The industry average for the 2018 models in the study based on problems per 100 cars was 121. Tesla Inc. (NASDAQ: TSLA) cars received a horrible rating of 176, particularly shocking because of the popularity of its brand, the brisk sales and the legendary design.
While Tesla has entered the middle segment of the car market with its $40,000 Model 3, its flagship Model S is still well into the luxury category with a price that can range above $130,000.
Tesla’s reputation has been further burnished by the market value of the company that is over $750 billion. That is more than Berkshire Hathaway, Walmart or JPMorgan. It is also as much as the market caps of the next six car companies by that measure combined.
Tesla produced 500,000 vehicles last year, and it hopes to push that figure higher by 50% in 2021. With a drop in vehicle dependability ratings, that task just got harder. (24/7 Wall St.com)
If, as a new report suggests, Apple Inc. (NASDAQ: AAPL) is working on a foldable iPhone, we can be sure of two things. The company believes that foldable display has finally put its initial troubles behind it, and such a device is going to raise the high end of Apple’s iPhone pricing.
Citing a report in Taiwan’s DigiTimes, AppleInsider said that Apple has sought help from LG Display to develop a folding smartphone screen. In January, Bloomberg reported that Apple had begun working on a foldable iPhone to compete against rivals Samsung and Motorola.
Samsung launched the first folding smartphone, the Galaxy Fold, in April of 2019. The phone had both display and hinge problems and cost some $2,000. In early 2020, Samsung launched a folding flip phone, the Galaxy Z Flip, and Motorola launched a new RAZR flip phone that carried a price tag of $1,500. Neither device solved all the problems of the original Galaxy Fold.
At this year’s virtual Computer Electronics Show last month, LG Electronics showed off its LG Rollable, a smartphone with a flexible screen that unrolls as you slide the phone apart. Here’s an LG animation of how the mechanism works.
LG’s CEO claimed that the company hopes that the LG Rollable will be on the market “early this year.” As in before June 2021?
LG, pretty much an also-ran among smartphone brands, may have a technology here that Apple could use to differentiate its foldable/rollable iPhone from the Samsung and Motorola phones.
Samsung is working on updates for its foldable coming Galaxy Z Fold 3 and Galaxy Flip 2 phones. Motorola released a redesigned RAZR 5G phone last October. The updates presumably will include lower pricing. The RAZR 5G lists for $1,399 and the Galaxy Z Fold 2 lists for $1,999, while the Galaxy Flip 2 is priced at $1,449.
If Apple does include a foldable/rollable iPhone in its 2021 release schedule, the device would certainly be the company’s most expensive phone. The iPhone 12 Pro Max has a list price of $1,099, and a foldable device would likely cost at least 50% more. If Samsung’s top-of-the-line foldable costs around $2,000, Apple is unlikely to set a price lower than that and is more likely to set a price at least 10% to 20% above it. The company won’t be aiming at the mass market with such a device, but then a foldable phone could pull prices and margins higher for the phones most of us buy.
The war between Armenia and Azerbaijan last fall dramatically changed the geopolitical situation in the South Caucasus, and Armenia’s strategy is beginning to change to reflect it. Last week, Armenian Foreign Minister Ara Ayvazyan said Turkey no longer had any reason to keep its border with Armenia closed.
Ankara shut the border with its eastern neighbour in 1993 over the conflict in the disputed territory of NagornoKarabakh – parts of which are since November under Azerbaijani control while other parts are patrolled by Russian peacekeepers. This comes a couple of months after Turkish President Recep Tayyip Erdogan proposed a six-party platform to develop cooperation between the states in and around the South Caucasus, including Armenia.
Opening up the Armenian-Turkish border risks further empowering Turkey, a historical enemy of Armenia, in the Caucasus. But Armenia is out of options, and rapprochement would free up trade and economic opportunities for Yerevan that may be irresistible.
Difficult Past
Armenian-Turkish relations have always been strained. Armenia became part of the Ottoman Empire during the 15th and 16th centuries. Later, Persia seized Eastern Armenia – which today composes the entire territory of Armenia – while Western Armenia remained under the control of the Ottomans.
By the beginning of the 20th century, Armenians, who were concentrated in the Ottoman Empire’s eastern provinces, made up about 20% of the Ottoman population. But in 1915, almost all the Armenians in the empire were either killed or expelled from Western Armenia. Turkey’s refusal to recognise those events as genocide is to this day one of the sharpest points of division between the two countries.
The Turkish government considers the events of 1915 a tragedy and admits that a large number of Armenians died, but it rejects the “genocide” label.
In 1920, Armenia and Turkey fought a war that ended with Armenia’s defeat and the signing in 1921 of the Treaty of Kars, which saw Armenia lose almost 30% of its territory, including Mount Ararat, an Armenian national symbol, to its larger neighbour.
Turkey was one of the first countries to recognise Armenia’s independence after the collapse of the Soviet Union in 1991, but political tensions between the two states spiralled soon after that. Turkey broke off diplomatic relations and closed the border in 1993 during the First Nagorno-Karabakh War, between Armenia and Azerbaijan. Ankara was also agitated by the new government in Yerevan’s claims on some Turkish lands.
In the second half of the 2000s, there was a slight warming in relations between the two countries, but it didn’t last. When Turkey sided with Azerbaijan during the brief war over Nagorno-Karabakh last year, relations hit rock bottom.
New Geopolitical Realities
In the autumn, Armenia’s ambassador to Russia remarked that the involvement of Turkey, a NATO member, in the conflict in the South Caucasus meant the geopolitical realities of the region had changed.
Ankara is not only still militarily involved – Turkish forces are taking part in peacekeeping operations with Russia, modernising an airfield in Georgia and conducting exercises with Azerbaijan – but it is also strengthening its role economically and via infrastructure projects.
At the same time that Turkey is casting a bigger shadow over the region, Russia, Armenia’s ally, is showing that Yerevan can no longer take its support for granted. During the war with Azerbaijan, Russia remained neutral, not wanting to spoil relations with Azerbaijan and Turkey. When the Kremlin did get involved, it was to broker an armistice agreement that forced Armenian forces to withdraw from most of Nagorno-Karabakh and surrounding districts. Although Armenia continues to assure Russia of its loyalty and still hosts a Russian base in Gyumri, the events raised many questions in Yerevan.
This leaves Yerevan with little choice but to open up to Ankara, difficult though that may be. The issue of NagornoKarabakh is on ice, but Armenian-Turkish relations are still complicated by the genocide dispute and Turkey’s support of Azerbaijan. There are also outstanding territorial disputes.
After the 1921 Treaty of Kars, Armenia vowed never to relinquish its claim to vital territories it lost to Turkey, including areas that would give the now-landlocked country direct access to the Black Sea. But the recent conflict proved that Armenia is not ready for a new military conflict, especially against Turkey, and it lacks the means to build its defense industry or acquire the weapons to change that fact.
Economically, it has even less weight and absolutely no tools with which to pressure Ankara.
Turkey as Economic Partner
Armenia’s economy may have shrunk by as much as 8% in 2020, according to the country’s central bank, and its public debt was just under $8 billion – a record-high for the country – at the end of the year. So Armenia, like many other countries, is looking to expand economic ties and trade to replenish its treasury and stimulate the domestic economy, especially at a time when it can’t expect funding from Russia, which has economic difficulties of its own.
Turkey could offer an answer, and the idea is already circulating in the Armenian government. Some Armenian deputies are urging the government to start a dialogue, establish diplomatic relations with Azerbaijan and make peace with Turkey, though they haven’t found wide support so far.
They note that normalisation with Turkey could lead Ankara to unblock the border, allowing road and rail transportation. This would enable Armenia to access the Black Sea, and would create opportunities for trade with the west – not only the European Union, but also Libya and Syria, which Yerevan considers to be potential markets.
An open border would also greatly simplify the export and import of goods between Armenia and Turkey.
Despite the cold political atmosphere between the countries, their trade relations have blossomed, fuelled by demand from Armenia. Turkey accounts for about 5% of all Armenian trade, according to official figures.
Some sectors are closely integrated; the Armenian textile industry, for example, works mainly on Turkish fabrics and linens. However, on December 31 the Armenian government instituted a six-month ban on the import of Turkish goods in response to Ankara’s involvement in the Nagorno-Karabakh conflict.
Enforcement is lax – Turkish goods can make their way into the country via a third country (for example, Georgia) or through the customs territory of the Eurasian Economic Union – but the point remains.
Turkey could also benefit from cooperation, since it may strengthen the Turkish position in the Caucasus and would simplify doing business with Armenia and its unsaturated market. Turkish construction companies, for example, frequently take part in expos hosted in Yerevan.
Turkey could also benefit from the development of its northeastern territories, which are relatively less developed and experience population outflows to the rest of the country. This may also boost Erdogan’s position in the next election in 2023.
Even in 1998, President Suleyman Demirel said that the peacetime blockade of Armenia was ineffective, and that it would be better to bring Armenia into the TurkishAzerbaijani orbit. Finally, Turkey might be interested in improving ties with Armenia because it could be beneficial in future discussions with the European Union, given that France has historical ties with Armenia.
The logic of cooperation is obvious, but the domestic political constraints, especially in Armenia, are real.
Armenians would see an agreement with Turkey as surrender and an attempt to erase the 1915 genocide. The main question is to what extent Moscow would support such an agreement, since it could reduce Armenia’s dependence on Russia and strengthen Turkey’s presence in the region. Russia views Armenia as key to the regional balance of power, and Turkey will not challenge Russia on this.
Cuba may be a geostrategically valuable country, but its value far outweighs its actual power.
The island’s proximity to the rest of North America’s coastlines, as well as its position in the Gulf of Mexico, which gives it influence over all maritime traffic in the northern part of the Western Hemisphere, has made it both a prise and a power broker for anyone with interest in this region of the world.
Yet, its small size and limited resources prevent Cuba from projecting much power on its own.
Havana’s solution to this historic dilemma has been to offer itself to a patron who in return can offer economic prosperity and security guarantees. The Spanish first established this client-patron relationship in the 15th century, using Cuba as a critical resupply station between the Old World and the New. As the Spanish Empire faded, so too did Cuba’s economic prosperity.
Tired of sacrificing for a patron that could no longer meet their needs, the Cubans rose up against the Spanish and allied with the United States. The new relationship was a boon to the Cuban economy, but Washington’s heavyhanded political control led to another revolution, after which the Cuban government, then led by Fidel Castro, quickly aligned with the Soviet Union. After it collapsed, the Cuban economy again fell into disrepair.
Unlike Cuba’s break from Spain and the U.S., the split with the Soviets was not initiated by Havana, which was therefore unprepared for it. Foreign aid, strong security forces and state-sponsored initiatives to promote tourism allowed the Castro government to remain in power until a new patron could be found.
Cuba, a communist country in a post-Cold War world, didn’t have a lot of options. Enter Hugo Chavez. His rise to power in oil-rich Venezuela in 1999 made Caracas a viable patron for Havana. Chavez had the Bolivarian ideology that meshed nicely with Cuba’s. Venezuela gave Cuba subsidised oil, and in return Cuba supported Venezuela with intelligence and security cooperation.
Their partnership, however, was short-lived. Chavez died in 2013, leaving Venezuela’s government accounts distorted with high social spending bills and a population dependent on government services. Oil prices tanked in 2014. Since then, Venezuela’s ability to lend support to Cuba has dramatically declined. Caracas can no longer feed its own population, let alone prop up a foreign government.
Russia has attempted to fill the void by cancelling Cuba’s debt, initiating a railway modernisation project and giving Cuba modest grain exports. These efforts were enough to forestall a crisis but not to fundamentally change the direction in which Cuba was heading.
It’s now 2021, and Cuba’s behaviour over the past few months leads only to one conclusion: that the economy is reaching a breaking point and the government is therefore looking for a patron to ensure its survival. For over a year, there have been anecdotal reports of fuel shortages. Economic problems in the agriculture sector have compromised domestic production and led to shortages.
President Miguel Diaz-Canel has even acknowledged the situation publicly.
Between reduced Venezuelan oil shipments and the high price of alternative oil imports, transportation on the island is also breaking down. The brief influx of U.S. dollars after travel restrictions for Americans were lifted in 2015 ended in 2017, when the Trump administration reinstated past restrictions and introduced more severe sanctions against Cuba. The COVID-19 pandemic killed international travel to the island and thus its lucrative and crucial tourism industry.
The government is looking for answers. It put in a request with the Paris Club for a two-year moratorium on paying its debt; the club granted it a one-year reprieve last month. It has accelerated a raft of economic reforms meant to spark economic activity by reducing distortions and attracting investment.
In July, the government made U.S. dollars more accessible so that they can be used to buy a wider range of basic goods.
In November, it streamlined the process by which foreign investment was approved and started to experiment with expanding digital services to further reduce processing times. The next month, the Foreign Trade and Investment Ministry announced that the government would no longer be required to have a majority share in joint business projects in the areas of tourism, biotechnology and wholesale trade.
This was followed by the end of select subsidy programs and the convertible Cuban peso. More recently, in early February, Cuba announced that it would expand opportunities for private businesses to operate, lifting restrictions on private enterprise in 1,873 of 2,000 sectors. The government also increased fines for those that engage in price speculation.
Social pressure
Mounting social pressure has amplified the government’s sense of urgency. Last November, there was the first of many protests staged by artists who spoke against the government by occupying the palace plaza and going on a hunger strike. The government intervened, made some arrests and offered an empty invitation to engage in dialogue.
Since then, supporters and sympathisers have come together to form the San Isidro and 27N movements. Their most high-profile activity so far was the Feb. 9 delivery of a letter intended for President Joe Biden to the U.S. Embassy in Cuba, in which they asked him for help ending some of the recent sanctions placed on the island.
Havana subtly broadcast last week that it was in the market for a new patron. It came in the form of a letter from the Cuban Embassy in Bogota warning the Colombian government of a possible upcoming attack by the National Liberation Army, the paramilitary organisation better known as the ELN.
The ambassador submitted a document saying outright that the Cuban Embassy had received the information but had not verified it. Given Cuba’s long-standing relationship with the group, the announcement was interpreted as Cuba looking for a political opening.
Among the leading candidates are the U.S. and China. The Biden administration has put nearly all foreign relations under review, and many expect it to revitalise President Barack Obama’s efforts to normalise ties with Cuba.
Through executive powers, a U.S. president can unilaterally control, to a degree, anyway, the extent to which the U.S. opens to the island. But it remains a highly contentious issue in U.S. politics; these kinds of changes require a lot of political capital, and Biden is currently in short supply.
Cuba-watchers – those for and against closer ties with the island, and those inside and outside elected office – have already started mobilising to get their way. For now, though, the U.S. government does not appear positioned to make any significant changes to its Cuba policy.
China, meanwhile, has been slowly gaining economic influence in Latin America over the past decade and recognises Cuba’s strategic position relative to the United States. China needs some leverage against the U.S. similar to the kind Washington has against Beijing in the South China Sea.
Improved ties with Cuba would go some way toward getting that leverage. Beijing has certainly used shared ideological beliefs to politically align with the Cuban government, and on the economic front, China is now Cuba’s second-largest trading partner.
Important advances have also been made in Cuba’s telecommunications systems. Huawei helped establish public Wi-Fi hot spots throughout the island and is now helping increase household connectivity. China’s Haier now assembles laptops and tablets in Cuba, and the China Communications Construction Company operates in Cuba’s Mariel Special Development Zone.
A U.S. Homeland Security report indicated that China’s telecommunications presence on the island already impedes U.S. firms from entering the Cuban market. Chinese financing now supports port modernisation projects in Santiago, and investments are planned in pharmaceuticals and tourism.
Cuban officials have also highlighted renewable energy, cybersecurity, technology and biotechnology as areas in which they’d like to work more closely with China. These projects help Cuba, of course, but more will be needed to stabilise the economy, let alone change its current trajectory.
How much China comes through will depend in part on how secure its foothold is in Cuba – and how well it will be able to keep the U.S. on edge.
Cuba has made overtures, and though the U.S. and China are the leading options for Cuba, both face constraints in terms of how they can respond. Either way, Havana is on the clock.
Turkey’s long-term goal is to become a military and economic power with global outreach. Its path to success, however, isn’t a straight line. Crises will inevitably emerge, requiring tactical pauses or a strategic redirection.
Today, Turkey is facing mounting challenges in the international system, forcing the country to rethink its foreign policy. It’s therefore making an effort to stop the deterioration of its foreign relations and to stabilise its financial situation, so that it can resume its quest to become a global power.
Reviving Past Glory
Turkey’s claims to great power status have a long history. In the 1930s, Mustafa Kemal Ataturk endorsed the sun language theory – the belief that all languages are derived from an early iteration of the Turkish language.
Ataturk, who was a big proponent of Turkish nationalism, wanted to convince European nations that Turkey was one of them. During his time, Turkish historians traced the origins of Turkish nationalism to the Battle of Manzikert in 1071 when the Seljuks defeated the Byzantine army and conquered Anatolia. They emphasised Anatolia’s Hellenistic heritage to advocate that it had a place in Europe.
Like Ataturk, President Recep Tayyip Erdogan is a populist leader and staunch moderniser. Both men also realised quickly that Russia would not be an ally in Turkey’s quest for greatness.
For Ataturk, it was clear that the Soviet model was not one he wanted to follow, and for Erdogan, the two countries’ histories, geographies and perceptions of their own power stood in the way of strategic cooperation. The difference between Erdogan and Ataturk, however, is that Ataturk looked to Europe as a model of modernity that he wanted to replicate in Turkey, whereas Erdogan wants to reconnect
Turkey with its Ottoman roots.
Erdogan’s campaign to resurrect Turkey’s past glory and transform it into a military and economic power explains some of Ankara’s recent achievements. Earlier this month, Erdogan announced that Turkey planned to send an unmanned spacecraft to the surface of the moon in 2023. Ankara also plans to launch its first domestic-made
communication satellite in 2022.
Over the past two decades, Turkey has developed a robust defense industry that now meets 70% of the country’s military equipment needs, with plans to become selfsufficient by 2053. Turkey is one of just ten countries that manufactures warships and is already working on building a modern main battle tank and a fifth-generation fighter.
Turkey has also experienced impressive economic development over the past 30 years. Its economy is the world’s 19th largest and 13th largest in terms of purchasing power parity. Its human development index rose from 0.58 in 1990 to 0.82 in 2019, placing it in the very high human development category.
It has a modern economic structure, with 65% of the labour force involved in the services sector, 27% in industry, and 8% in agriculture. Despite the economic slump of 2018 and the COVID-19 pandemic, the Turkish economy is expected to grow by 4% this year.
Recent Policy Changes
Since the 2016 failed coup, Turkey’s foreign policy has seen a raft of changes. Former Prime Minister Ahmet Davutoglu’s 2004 “zero problems with our neighbours” policy has been replaced with a bewildering array of enemies in the Middle East and beyond.
Over the past five years, Turkey has participated in armed conflicts in northern Iraq, Syria, Libya and Nagorno-Karabakh. It also maintains significant military contingents in Qatar, northern Cyprus and Somalia.
Ankara’s relations with Europe and the United States have deteriorated thanks to its military adventurism, purchase of Russianmade S-400 missiles (which led to a U.S. ban on arms exports to Turkey and Ankara’s expulsion from the F-35 fighter jet programme), and recent activities in the eastern Mediterranean.
However, Turkey appears determined to make 2021 the year of political flexibility and diplomacy. Erdogan is keen on engaging the new U.S. administration – despite President Joe Biden’s calling Erdogan an autocrat during his election campaign and his secretary of state, Antony Blinken, saying that Turkey was not acting as an ally.
Erdogan continues to believe that U.S. support for the Syrian Kurds is at the centre of the rift between the two countries, but he has softened his tone, signalling that Turkey’s problems with the outside world can be resolved through dialogue. Turkey’s minister of defense also suggested the country was willing not to use the S-400s in an effort to defuse tensions and avoid incurring sanctions.
Erdogan has also expressed an openness to working with Europe. In part, that’s because European leaders already approved sanctions on Turkey over its drilling activities in the eastern Mediterranean.
Turkey’s apparent willingness to restart talks with Greece on demarcating exclusive economic zones in the Mediterranean doesn’t change its fundamental position. But the move shows that Ankara would rather use diplomacy than flex its military muscle (which angered NATO, and especially France) to defend its drilling rights in Mediterranean waters.
Erdogan has also toned down his criticism of France, after calling French President Emmanuel Macron a thug. Turkey’s foreign affairs minister expressed willingness to start a constructive dialogue with France to resolve their differences on issues ranging from Syria to Libya and the eastern Mediterranean.
Erdogan also urged Europe to remove obstacles blocking its accession to the European Union and European customs union and stalling visa-free entry into the EU for Turkish citizens.
Erdogan has also extended an olive branch to Egypt. Last September, he spoke of the deep historical ties between Turkey and Egypt. He called for dialogue with Cairo and recognised Egypt’s interests in Libya, eager to strike a maritime agreement similar to the one Ankara reached with Libya’s Government of National Accord. Erdogan emphasised that intelligence cooperation between the two countries continued despite their political differences.
Erdogan was a supporter of former Egyptian President Mohammed Morsi, who was ousted in a 2013 military coup led by current President Abdel-Fattah el-Sisi.
Turkey has also made overtures to Israel, appointing a new ambassador in December after leaving the post vacant for two years.
Policy Shifts
Despite showing room for negotiation on some fronts, Turkey’s position on the Kurdistan Workers’ Party (PKK) and People’s Protection Units (YPG) remains unshakeable. Ankara views these groups as existential threats because it believes leaving them unchecked could lead to Turkey’s demise.
Ankara was angered by the U.S. State Department’s statement earlier this week on the deaths of 13 Turks in Iraq because the statement made its condemnation of the killings contingent on verification that the PKK carried them out – rather than accepting Ankara’s account. That Blinken called his Turkish counterpart to accept the Turkish version of events attests to the Biden administration’s openness to dialogue.
In the eastern Mediterranean, Turkey does not recognise the 1982 United Nations Convention on the Law of the Sea because Ankara believes it favours Greece and
Cyprus. Turkey does not expect to reach an agreement with Greece in 2021 to delineate their exclusive economic zones. Though Erdogan is willing to negotiate, he’s not willing to concede much on this issue, which enjoys rare national consensus in Turkey.
With Russia, Turkey has many ongoing disagreements, including over Syria, Libya and Nagorno-Karabakh.
In Syria, Turkey wants an end to Bashar Assad’s regime and a comprehensive political settlement that allows the return of displaced Syrian refugees. In Nagorno-Karabakh, Turkey managed to penetrate Russia’s backyard by backing Azerbaijan’s war to reclaim the disputed region last year. In doing so, it gained access to the Nakhchivan Corridor, linking it to Azerbaijan, as well as Turkmenistan and Kazakhstan via the Caspian Sea.
Future Outlook
Despite its diplomatic overtures, Turkey will face a number of challenges this year. Its relationship with the U.S. will not normalise in 2021, though it’s unlikely to deteriorate any further. Erdogan isn’t willing to burn bridges with an administration that just took office.
His most formidable challenge, however, is defining Turkey’s relationship with Russia. Both countries will be bound by dialogue, but their disagreements especially over Syria’s fate will be an obstacle to any rapprochement.
Ankara’s diplomatic outreach may be more successful among its Middle East neighbours. The Saudis, concerned about a shift in Washington’s Gulf policy, especially on Iran and the Houthis in Yemen, seem to have opened up to Turkey to try to secure a semblance of a regional balance.
The Saudis are quite interested in allying with Israel, but they cannot do so without the backing of a major Muslim country, such as Turkey. Indicators point to the opening of a new chapter of friendly relations between Riyadh and Ankara.
Turkey also maintains good relations with Qatar, which was the subject of a 3 1/2-year Saudi-led blockade that recently ended.
Erdogan’s pursuit of an independent Turkish foreign policy sends signals to the West that Turkey will no longer be subservient. In this sense, his foreign policy approach is close to that of Ataturk, who fiercely defended Turkey’s sovereignty and independence.
Erdogan is probably the Middle Eastern leader best equipped to seize opportunities when they arise and change his position when circumstances permit, as they do now.
Risk sentiment remains poor, as investors continue contending with this week’s surge in Treasury yields, with 10-year yields above the psychologically important 1.30% level early on Friday.
US stock futures are edging lower following three consecutive days of losses for the S&P 500 and the Nasdaq, while most Asian benchmark indices are in the red.
Market participants are willing to bet that the swathes of fiscal and monetary support for the US economy will lead to bigger inflationary pressures. Amid this Fed-fiscal fete, investors are trying to pre-empt when the U.S. central bank might ease up on its asset purchases which could then pave the way for a rate hike.
Reflation trade stoked by US optimism
Investors have been paring their exposure to equities as they attempt to sort through this conundrum, and it remains to be seen whether the reflation bet will be vindicated by a strong showing in US inflation.
Still, investors would be remiss if they were to already fully exclude the pandemic’s downside risks. Thursday’s larger-thanexpected US weekly jobless claims dented some of the optimism surrounding the positive surprises earlier in the week, validating the Fed’s insistence that the US economy remains a “long way” from a full recovery.
The February US Markit PMIs may add more colour to investors’ views as to whether the rosier economic outlook remains warranted.
Biden-Powell next week
In order for risk-on sentiment to be restored over the coming week, it may require the Biden-Powell tag team to really come through.
Federal Reserve Chairman Jerome Powell is set to deliver his semi-annual testimony before the Senate next Tuesday, and it remains to be seen whether the scheduled Fed speak over the coming days will help or hamper rising yields.
Then, President Joe Biden’s $1.9 trillion fiscal stimulus package could be put through its first floor vote in the House of Representatives next Friday.
The hopes for more incoming US fiscal stimulus remain a pillar for equity bulls, even though it may herald a ramping up of US inflationary pressures. Should the Fed be able to convince markets that any tapering remains a distant event, that should spell more upside for stock markets as they continue wallowing in the abundant money flows in the interim.
Gold losing out as inflation hedge
Spot gold has clearly languished in the wake of this surge in Treasury yields, with the precious metal trading around its lowest levels since July. Bullion is on course for seven consecutive days of losses, its longest losing streak since November 2018.
Gold is having a tough time trying to win over investors in validating its role as an inflation hedge, with other assets currying more favour instead.
The optimism surrounding the US economic outlook also does not play into gold bulls’ hands, while the surge in Treasury yields is eroding demand for the non-yielding precious metal.
Until investors are shown real signs that inflation is picking up, they’re unlikely to have much reason to hold on to the precious metal in the interim. Gold’s waning appeal is evidenced by ETFs shedding their holdings by almost 974,000 ounces so far this year.
From a technical perspective, the downtrend remains firmly intact since posting that record high back in August.
Having formed a ‘death cross’ earlier this week, with the 100-day simple moving average (SMA) set to join its 50-day counterpart below the 200-day SMA, such a technical event typically heralds further declines over the near term.
With momentum pointing south, coupled with the fact that prices have yet to conclusively drop into oversold territory, spot gold could yet dive closer towards the key psychological $1700 mark.
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