Turkish financial markets continued to rally last week ahead of the upcoming presidential election, which is less than three weeks away. The central bank of Turkey (TCMB) cut key interest rates on Thursday to stay in line with decreasing inflation. Concerns over escalation of the shooting-down of the Malaysian Airlines flight by what appears to be Russian-backed Ukrainian separatists, appears to have abated with measured responses from all-sides. Growing anger over the killing of Palestinian civilians by Israel in Gaza dominates Turkish news while ISIS fighters consolidate power in the large part of Iraq they now control. Recent regional upheaval has made Turkey the destination of choice for Alpha-hungry investors as well as those who are just looking for a port to park their funds while the dust settles in the broader Middle East.The benchmark BIST-100 index continued to rally, up over 2.7 percent for the week standing at 82,647 points late Monday. This brings the index up 25 percent for the year in Turkish Lira terms and up over 27 percent in U.S. dollar terms. By comparison, the S&P 500 index is up 8.2 percent for the year in U.S. dollar terms.Fixed income markets have traded steadily, with the benchmark 2-year bond trading higher while its yield fell from 8.1 percent to 8.07 percent for the week. The long-end ten-year bond also traded higher as its yield fell six basis points from 8.79 percent last week to 8.73 percent towards the end of trading on Monday.On Thursday the Monetary Policy Committee of the TCMB lowered two important interest rates in-line with economist's estimates, on news of which, equity markets rallied. Previously the overnight lending rate, the repurchase, and overnight borrowing rates were set at 12 percent, 8.75 percent, and 8.0 percent. Thursday's announcement saw no change in the lending-rate, leaving it at 12 percent, however the repo-rate was decreased to 8.25 percent and the borrowing rate was reduced to 7.5 percent. This steady decline should see all three rates return to near pre-crisis levels by the end of the year at this speed of decreasing the price of capital.Turkish credit-default swaps, insurance against political and economic stability, traded at 1.83 percent up marginally on news of the downing of the Malaysian Airlines jet. Turkish CDSs still trade below those of some EU and Eurozone countries such as Portugal, which appears to be in the middle of a major financial meltdown. The Turkish Lira continued to improve, albeit slightly, trading at 2.1170 down from 2.1187 where it traded last Monday.The Central Registry Agency's (MKK) "Foreign Participation in Turkish Equity Markets index" jumped to 64.30 percent on news of Prime Minister Erdogan's commanding lead in polls taken across the country. It had been at 63.66 percent previously, up over a percent for the week. Foreign investors, looking for long-term stability, see Erdogan's election to the presidency a good sign of continued economic liberalization and growth to come.Late Friday the U.S. announced an extension in the talks between the P5+1 group of countries with Iran over its nuclear ambitions. The U.S. and Iran have been on the same side of many conflicts recently (Syria, Iraq) and appear to have come to an agreement regarding demilitarization of any Iranian nuclear capabilities. This is good news for Turkish financial markets as this should lead to the lifting of economic sanctions on Iran, allowing it to spend its massive oil-wealth freely. Surely a neighboring Turkey will be one of the few promising trading partners which will be able to supply Iran with much needed goods and services, as soon as it has access to billions of its dollars currently frozen in the United States. Russia's Vladimir Putin is currently in a predicament as to how he can winddown relations with Ukrainian separatists without looking weak. He also faces potential economic sanctions from the EU should he not do so, as the majority of passengers on the Malaysian Airlines jetliner were EU citizens. A quick and peaceful resolution to that crisis, an apparent case of mistaken identity, would be in the best interests of all sides including the major trading partner, Turkey.A continued strong showing in polls leading up to the presidential election on August 10th will push markets higher. Any win over 55 percent would push markets to record levels, any result below the 55 percent level would bet with less enthusiasm.