Turkish Markets Rally on Reports U.S. Made New Offer on Weapons

Cagan Koc and Ugur Yilmaz

(Bloomberg) -- Turkish markets rallied after local media outlets reported that U.S. envoy David Satterfield had offered Ankara a new trade package and F-35 jets, spurring optimism the estranged NATO allies were making headway in patching up relations.

Satterfield offered on Friday to sell Turkey a Patriot missile defense system and lower tariffs on steel and aluminum, Haberturk and NTV reported, without citing anyone. The lira advanced for a second day, while stocks and bonds jumped.

Local media also reported that the U.S. may unveil a new economic package to boost bilateral trade to $100 billion from about $19 billion. A written version of Satterfield’s offer is expected to be sent to the Turkish government, according to Haberturk. The U.S. Embassy didn’t reply to requests for comment.

The reports are at odds with U.S. Secretary of Commerce Wilbur Ross’s observation two weeks ago during his visit to Turkey that negotiations for a possible trade deal haven’t even started. Ross also said the 25% tariff on steel is applied universally, except for countries which had accepted strict quotas.

Still, Tuesday’s reports add to speculation that Turkey may get leeway to escape from sanctions Washington has vowed to impose on Ankara on the condition that it does not activate Russian S-400 missiles -- a purchase that has strained ties between the allies. U.S. President Donald Trump and Turkish President Recep Tayyip Erdogan may meet this week on the sidelines of the United Nations General Assembly in New York.

The lira was trading 0.7% stronger at 5.6789 per dollar as of 12:20 p.m. Istanbul time. The benchmark Borsa Istanbul 100 Index added 1.6% and the yield on 10-year local-currency bonds fell more than 20 basis points.

Locked Out

The U.S. locked Turkey out of a program for advanced F-35 fighter jets to punish it for buying the Russian missiles that Washington says could compromise intelligence gathered by American aircraft, instead of Patriots. Turkey, meanwhile, is shopping around for alternatives to the F-35 that could draw it even closer to Moscow.

Turkey and the U.S. are also at loggerheads over how far to push American-backed Kurdish forces away from the Turkish border with Syria. Ankara views the Kurdish YPG fighters as enemies because of their links to the separatist PKK group Turkey has battled for decades.

(Updates with market reaction.)

To contact the reporters on this story: Cagan Koc in Istanbul at ckoc2@bloomberg.net;Ugur Yilmaz in Istanbul at uyilmaz@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Lin Noueihed at lnoueihed@bloomberg.net, Constantine Courcoulas, Adveith Nair

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