Geopolitics and Markets Review – 29th May 2023

Sections

1) Erdogan Re-Elected

2) Debt Ceiling Agreement

3) Germany Enters Recession

4) Taliban Attacks Iran Border Post

5) NVIDIA and AI Stock Market Rally

6) Other News

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Erdogan Re-Elected

Erdogan won re-election after he was declared the winner by the Supreme Election Council. He beat Kemal Kilicdaroglu of the opposition Republican People’s Party.

In his victory speech, Erdogan referred to the inflation problem as one that is “not a difficult problem to solve”. This, and addressing the damage caused by the Earthquake in February will be two of Erdogan’s key priorities at home.

But, Turkey’s current role in the geopolitical field is to buy influence, of which they are growing in. Turkey is a member of NATO while also controlling traffic in and out of the Black Sea through the Bosporus. The future of their NATO membership will be brought into discussion. Turkey is balancing both sides of the coin. As I’ve said before, those who emerge from periods of conflict the least damaged can take advantage of their strong position as we enter the next cycle of peace. Is this the game Turkey is trying to play? Often dubbed the land bridge between Europe and Asia, Turkey is in a position to take advantage of its position of growing global importance if it can address issues at home.

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Debt Ceiling Agreement

President Joe Biden and Republican House Speaker Kevin McCarthy have reached an agreement on the debt deal that will stop the US from defaulting on its debts. The following policies are part of the deal:

· Debt Limit. – The debt limit will be suspended until January 1st, 2025. It was thought that the Republicans could try to use an election-year debt ceiling limit as a way to damage the Democrats' campaign. This deal shows this will not occur.

Photo by Alice Pasqual on Unsplash

· Spending. – Spending has been capped, excluding defence. The deal will see non-defence spending close to flat in 2024, before increasing 1% in 2025. A specific area targeted was $20B of the new IRS funding and $30B of Covid relief funding. Defence spending will increase 11% from the currently allocated amount of $800B.

· Energy and Environment. – The deal will not make any changes to the Inflation Reduction Act, which the Republicans had wanted to address and make changes to if possible. One positive move is the creation of the Mountain Valley Natural Gas Pipeline in West Virginia will be sped up. It will however be made easier for energy projects to gain permits. This includes fossil fuel projects.

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Germany Enters Recession

It comes as little surprise that the country that experienced the biggest energy decoupling upon Russia’s invasion of Ukraine has slipped into recession. Energy is vital in the functioning of the economy, especially the manufacturing side. German industrial production and retail sales dropped rapidly in March, and then the German GDP over the first quarter declined by 0.3%. This follows the 0.5% decline in Q4 2022.