Heading into today's much anticipated speech by Turkey's president Erdogan, market expectations were high for at least a trace of conciliation; some analysts even expressed hopes that the central bank, i.e. Erdogan, would greenlight a rate hike as follows:

  • Fidelity: 1000bps would be a "good start"
  • SocGen: 600bps
  • ADM's Ostwald: 500bps + IMF's bailout
  • UBS: 350-400bps

However, it was not meant to be, and it will probably not comes as a great surprise that the recently crowned "executive president" took the populist route and again urged Turks to "reach for the FX savings under their mattresses and sell them for liras" which he said is going to be the most effective response to the West... although probably not, because as Bloomberg points out, according to the the latest data Turkish residents held $158.6 billion dollars of FX deposits as of Aug. 3, and the number has surely risen in the past week.

Here is the punchline from his speech:

"We're going to continue to respond in kind to hands extended in friendship. Still, we have plans against all possibilities. I'm calling on interest rates lobbies: don't get high on your ambitions. You won't be able make money on the back of this nation. You won't be able to make this nation kneel."

Some more highlights from Erdogan's defiant speech:

  • Turkey won't give in to economic hitmen
  • "It’s a national, local struggle. It’s going to be my nation’s response to those waging an economic war against us"
  • The "interest rate lobby" won’t be able to bring Turkey down
  • Sees "no issues in Turkey macroeconomic data, banking system."
  • Turkey's facing a wave of artificial financial instability
  • Turkey’s prepared for all possible negative developments
  • Turkey’s facing a wave of “artificial financial instability"
  • Turkey’s made headway in “alternatives" from China and Russia to Iran

As Bloomberg points out, the reference to China, Russia and Iran "will set off alarm bells in Washington."

Turkey has plans to buy S-400 surface-to-air missiles from Russia, which NATO says are not inter-operable with NATO forces. Turkey was the first country Putin visited after his March 18 re-election. Cooperation between Russia and Turkey -- on nuclear power, energy pipelines, arms and tourism -- is at record levels.

The rest of the speech was more of the same, which the market quickly interpreted as Erdogan's defiance and unwillingness to change course, and as a result the Lira collapse has resumed...

... Turkish yields have resumed their surge to all time highs...

... and the TUR ETF is plunging.

Meanwhile fears of Turkish contagion have sent European banks tumbling to the lowest level since July 23.