The world is watching

Recep Tayyip Erdogan was halfway through a well-choreographed TV interview last month when the cameras unexpectedly cut away. Someone in the room could be heard exclaiming “Oh no!” The Turkish president reappeared 20 minutes later looking pale and tired, said he had a stomach bug, and then disappeared from public view for two days. In the heat of the most pivotal election campaign in a generation, Turks got a rare glimpse of life without him. Now the question resonating worldwide is whether they want to call a formal end to his two decades in power.

Erdogan is seeking re-election on May 14 after having molded the NATO military power in his own image. He’s changed just about everything, from the basic tools for managing the $900 billion economy, to Turkey’s positioning on the chessboard of a new Cold War. That’s why so much hangs on the neck-and-neck contest between Erdogan, 69, and his main challenger, Kemal Kilicdaroglu, 74, the candidate of a six-party opposition alliance who has framed the incumbent administration in unsparing terms.

But the choice will have broad consequences for geopolitics, not just Turkey’s 85 million people. Leaders in Washington and Brussels, seeking to bolster the coalition backing Ukraine against Russia, are eager to see Turkey return to its alignment with the West. When Erdogan resurfaced, it was via video link to a ceremony on the Mediterranean coast, where Russia is building the country’s first nuclear plant. Also attending, via a separate stream from the Kremlin, was Vladimir Putin. —David E. Rovella

Former Pakistan premier Imran Khan will remain in custody after a dramatic arrest that’s led to violent clashes across the country. The former cricket star’s arrest by paramilitary troops marked a sharp escalation in Khan’s confrontation with Prime Minister Shehbaz Sharif’s government and the country’s powerful military. At the same time, the nation’s economy is in deep trouble, as Pakistan edges closer to default and the unrest is set to delay an International Monetary Fund bailout. “It looks increasingly difficult for Pakistan to avoid a default in the absence of fresh funding support coming in,” said Eng Tat Low, an emerging-market sovereign analyst at Columbia Threadneedle Investments in Singapore.

US President Joe Biden warned that a US default would drag the country into a recession and have devastating repercussions across the global economy. The GOP has been threatening to push America into default unless the White House agrees to cuts in spending already approved by Congress. “If we default on our debt, the whole world is in trouble,” Biden said Wednesday. But the Democrat is also planning some possible alternatives to a new deal with Republicans.

Does the market think the US will default? The cost of insuring US Treasuries against default now eclipses some emerging markets and even junk-rated nations. Mounting investor anxiety about the prospect of a first-ever US default has made it more expensive to insure Treasuries than the bonds of—among others—Greece, Mexico and Brazil, which have defaulted multiple times and have credit ratings many rungs below that of the US’s AAA. Few investors doubt that America will make good on its debts. But even a technical default—one that merely delays interest and principal payments—would roil the $24 trillion Treasury market, the bedrock of the global financial system. For holders of the credit-default swaps, such a scenario would yield a lucrative return. “There’s something of a gambling going on in US CDS,” said John Canavan, lead analyst at Oxford Economics.

US inflation continued to slow in April, giving the Federal Reserve room to pause interest-rate increases. The consumer price index rose by a below-forecast 4.9% from a year earlier, the first sub-5% reading in two years. Excluding food and energy, the so-called core consumer price index also cooled slightly. A narrower price measure often cited by Fed officials—tracking services that have boomed as the pandemic faded—registered the smallest monthly increase since mid-2022, as airfares and hotel costs declined. US stock futures jumped, Treasuries rallied and the dollar weakened after the report. Here’s your markets wrap.

An investment firm controlled by a top Abu Dhabi royal has built a short position worth billions of dollars in US stocks, betting growing fears of a recession will squeeze markets.

Ukraine said troops pushed back Russian forces near Bakhmut in the eastern Donetsk region, though the Russian Defense Ministry said its units were advancing in the west and northwest of the devastated town. Neither could be independently confirmed. Poland meanwhile summoned Russia’s ambassador to Warsaw in protest after a Russian fighter jet flew dangerously close to a European border agency plane over the Black Sea.

China picked a little-known local government official to oversee the nations $61 trillion financial sector, a surprise move after Xi Jinping unveiled the biggest overhaul of the nation’s bureaucracy in decades. Li Yunze, a former banker, was named party secretary of the newly formed national financial supervision and management bureau that regulates thousands of banks, insurers and trust firms. The 52-year-old is being elevated from his latest post as a vice governor of Sichuan province, where he has served since 2018. His appointment may come as a surprise to market watchers, who had expected a pick with more seniority and expertise as Beijing is trying to rein in risk while shoring up growth.

American travelers have had more than their fair share of ongoing pain points with US airlines this past year, from soaring airfares and missing luggage to staff shortages and flight cancellation chaos. Now, new data confirm there is increased overall consumer disappointment with American carriers compared with a year earlier. Here’s the best and the worst up in the air.

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