Macroeconomic Evaluation

1. Global Macroeconomic Outlook

The US economy, recording annual 2.2% growth in the second quarter of 2026, maintains its resilience above potential growth despite slowing from the previous quarter's 2.6%. This performance is supported by retail sales' monthly 1.2% increase (annual 6.0%) and consumer expenditures' quarterly 3.2% growth; i.e., private consumption still provides the main driving force. The labor market, however, gives softening signals: unemployment rate rose to 4.2%, NFP (non-farm payroll change) increased by only 29 thousand people, falling well below the forecast (90 thousand). JOLTs job openings retreated to 7,079 million, broad unemployment (U-6) remained at 7.6% level. Consumer confidence retreated sharply to 81.9 (expectation 89.2), PPI accelerated to annual 5.4% (previous 4.8%); demand-side resilience is balanced with risks from cost and expectation channels. Wage growth slowed to annual 3.0%, monthly increase realized only at 0.1%, below forecast (0.3%). These data show that the labor market is consistent with a "soft landing" scenario but has lost momentum.

On the inflation front, headline CPI in the US held at annual 3.4%, while core CPI fell to 2.4%. The PCE indices preferred by the Fed (headline 3.4%, core 3.0%) continue above the target (annual 2%), while monthly dynamics (in the 0.2-0.3% range) follow a controlled course. 1-year inflation expectation rose to 4.6%, 5-year expectation to 3.4%; this indicates that central bank credibility is still being tested, and the upward drift of long-term inflation expectations (5-year: 3.4%, previous 3.3%) carries a risk of unanchoring. The Fed kept the upper bound of the fed funds target range at 4.0%; September SEP projections forecast year-end median rates of 4.1% for 2026, 4.1% for 2027, 3.9% for 2028 (upward revised from June); meaning the market has not yet priced in a definitive easing cycle, the "higher for longer" narrative is dominant. US 3-month treasury yield at 4.04%, 5-year at 5.01%, 30-year at 5.63%; the yield curve trades with a positive slope — the short end reflects the Fed's wait-and-see stance, the long end reflects high term premium.

The Euro Area presents a much weaker picture. Second quarter growth realized at quarterly 0.6%, annual 1.2%; industrial production with monthly 0.1% decline, annual 0.1% growth hovers at the edge of stagnation. Core inflation still above ECB target (2%) at 2.5%, headline inflation rose to 3.8% due to energy base effects. PPI shows a striking increase at annual 8.2% (previous 5.8), indicating continued cost pressure on manufacturing industry. ECB kept main refinancing rate at 2.65% (deposit rate 2.50%); however M3 money supply growth 3.5%, corporate credit growth 4.2%, household credit 3.1%, the credit channel is still functional but weakening. Consumer confidence -16.5 points, economic sentiment index 97.9 points, pessimism prevails. Budget deficit at 2.9% of GDP, debt stock at 87.8%; with the return to fiscal rules framework entering into force in 2024, member countries are under consolidation pressure. Current account surplus of 36.5 billion €, trade balance surplus of 14.2 billion € highlight the resilience of external balance.

From a global liquidity perspective: DXY retreated slightly from 101.79 level, VIX at 15.31 signals not "fear" but "complacency". Brent at 99.23 $/barrel, WTI at 88.80 $/barrel; while energy prices keep inflation risk alive, they trade in a balance of China demand concerns and OPEC+ supply discipline. Gold at 4.194.70 $/oz at historic highs; US real interest rate staying in relatively low band (policy rate 4.0% - PCE 3.4% ≈ +0.6 points) and central bank purchases (especially non-G7) provide support. In this environment, "carry" appeal for emerging market (EM) assets still exists but Fed easing delay and dollar direction uncertainty prevent risk premium compression.

2. Turkey's Macroeconomic Outlook

Turkey's economy recorded annual 2.3% growth (forecast 2.9%, previous 2.6%) and quarterly 1.1% growth in the second quarter of 2026. Growth may be in a composition where net export contribution is negative, domestic consumption and investment contributions are positive (this is a qualitative assessment as the breakdown is not found in the data block). Industrial production with monthly 1.0% decline, annual 0.32% contraction shows weakening industrial activity, while capacity utilization rate rising to 74.2% may be explained by stock cycle and seasonal effects. Business confidence 102.0, consumer confidence 91.9, economic sentiment index 101.3 points: business world optimistic, consumer still anxious. Unemployment rate 7.7% (TÜİK, August 2026); labor force participation remains low at 52.5%, youth unemployment and female employment continue as structural problems.

On the inflation front, a clear disinflation trend is observed: CPI fell to annual 29.73% (forecast 30.3%, previous 31.51%); monthly increase 1.84% (forecast 2.3%) remained at previous month's level. PPI annual 27.38% (previous 27.95%), monthly 2.07% (previous 2.57%). The annual gap between CPI and PPI narrowed to 2.35 points (CPI 29.73%, PPI 27.38%); PPI staying above CPI on monthly basis (2.07% vs 1.84%) may indicate producer cost pressures have not fully dissipated; core CPI and services inflation need to be monitored for demand/cost decomposition. Real effective exchange rate index at 105.45 (2003=100) level; meaning exchange rate could not fully offset inflation differential, real appreciation pressure still exists. This strains current account (cheapens imports, challenges exports in price competition) and creates pressure on exporter profitability and industrial competitiveness.

CBRT continues to keep policy rate at 37.0% (no change in September meeting). The difference between nominal policy rate and realized annual inflation is approximately 7.3 points; with simple Fisher approach ex-post real interest rate is approximately 5.6% (ex-ante real interest rate higher based on 12-month inflation expectation). This shows that tight monetary policy continues, but the distance between inflation target (annual 5%, medium-term) and current level is still large. Disinflation process is transitioning from "first phase" (breaking of shock inflation) to "second phase" (slowing of persistent components and services inflation); this phase is more difficult, requiring management of indexing behaviors and wage-price spiral risk.

3. Domestic Demand, Credit and Liquidity

According to CBRT data, bank deposit rate (weighted average, September 2026 period) 43.80% (previous 46.07%), consumer loan rate (August 2026 period) 64.74% (previous 63.67%). The spread between policy rate (37%) and deposit rate has narrowed, banks' margin management and liquidity cost optimization continue. The premium of consumer loan rate over policy rate (~28 points) reflects risk premium, operating costs and BRSA macro prudential measures.

Although credit growth (annual) at 36.32% (previous 36.60%) appears high in nominal terms, in real terms (based on annual inflation 29.73%) it shows a positive but weak real growth around 5-6%. M3 money supply growth at annual 29.71% (previous 32.22%) moves almost one-to-one with inflation (annual 29.73%); real money supply remains almost flat, may even be slightly contracting. This proves that CBRT's "tight liquidity" strategy operates through money supply as well.

The transmission channel works as follows: High policy rate -> bank funding cost rises -> loan rates (especially consumer and commercial) stay high -> real credit growth suppressed -> durable consumption (housing, automobile) and investment expenditures postponed -> domestic demand softens -> output gap closes/has closed -> margin pressure increases, pricing power weakens -> inflation falls. Current data show this mechanism is working, but due to "long and variable lags", sticky components like services inflation and rent have not yet fully responded. Retail trade sales volume's (purged of price effect, real series) annual 10.4% increase (monthly 0.2%) shows consumption is still alive in real terms; however limited monthly momentum and credit cost suggest a portion of this resilience may be relying on borrowing-fueled consumption.

4. Global Risk Appetite and Interest Rate Expectations

VIX at 15.31 level indicates market participants' short-term volatility expectations are low, signals risk of "complacency". DXY's slight retreat from 101.79 level can be explained by reflection of Fed easing expectations (forward guidance) to market; however September 2026 SEP's year-end median rates (2026: 4.1%, 2027: 4.1%, 2028: 3.9%) show the market cannot give a clear answer to "when is the first cut?" question. US 5y/30y comparison (no 2y and 10y in data, 5y 5.01%, 30y 5.63%) suggests curve is positively sloped; this is an environment where the spread between banks' short-term funding and long-term asset returns widens (supporting NIM) and term premium remains positive.

Investment grade (IG) and high yield (HY) credit spreads are not in the data block; qualitatively: when low VIX and tight financial conditions (high rates, QT) coexist, spreads can trade at historic lows; this is not "risk-on" (risk appetite) but "search for yield" and carries mispricing risk in low liquidity conditions. For Turkey: Foreign portfolio flows (equity/bond) depend on Fed cutting pace, Turkey's real yield premium (real yield) and CDS premiums. Nominal policy rate at ~37% remains attractive among EM peers, but real exchange rate appreciation (REER 105.45) and current account fragility (details below) make the foreign investor's "carry trade" position risky. BIST 100 (-0.56%) and BIST 30 (-0.49%) daily slight decline can be explained by the combination of global risk appetite slightly calming and local macro uncertainty (inflation path, rate decision).

5. Budget and External Balance

Central government budget for August 2026 period (data announced on 15 September) posted a surplus of 12.9 billion TL (previous month -378.1 billion TL). This dramatic turnaround can be explained by possible budget/cash engineering — expenditure deferral, seasonal and high inflation-driven nominal expansion in VAT/SCT/stamp duty, cash-based management of interest expenses; no structural improvement conclusion can be drawn from single-month data. Annual budget deficit/GDP ratio not in data block; qualitatively: High nominal interest expenses (DİBS/DİP bond coupons), indexation pressure in personnel and social expenditures, earthquake/disaster expenditures and defense expenditures push budget into structural deficit. Discipline targeted in 2026 program may be masked by intra-year cash-based surplus; however borrowing strategy (domestic vs foreign, TL vs FX) and real interest cost are of critical importance.

Current account: For July 2026 period (data announced on 11 September) 36 million $ surplus (expectation 650 million $, previous -4,333 billion $). This shows improvement in external balance in monthly flow; however actual came in clearly below expectation (650 million $). 12-month cumulative balance status cannot be inferred from single-month data. Exports 25.98 billion $ (October 5 data, monthly), imports 31.21 billion $; monthly trade deficit 5.23 billion $. Tourism revenues in Q2 2026 at 15.9 billion $ (previous 9.9 billion $) left a very strong season behind; tourist numbers nearly flat with 0.03% annual decline. Services balance (tourism, transport, software) plays a critical role in financing the current account deficit.

FX reserves (CBRT, weekly) 61,563 billion $ (previous 62,808 billion $); net reserves (excluding swaps) not in data block, qualitatively: Decline in gross reserves can be explained by TL liquidity management (FX sales/swap opening) and gold reserve valuation differences. Short-term external debt stock (no data) and reserves' coverage ratio of this stock (reserve adequacy criterion) is the main determinant of external financing fragility (sudden stop risk). In the equation current surplus + net errors/omissions + portfolio flows + direct foreign investment = reserve change, reserve decline in recent months shows financing side is still sensitive via "diğer yatırım" (banks/companies external debt payment) and/or portfolio outflow.

6. Energy, Commodities, Foreign Exchange and Bond Markets

Brent at 99.23 $, WTI at 88.80 $; prices trading high in balance of OPEC+ supply restrictions and global demand uncertainty (China's stagnation and EU's slow growth). Approximately 20-25% of Turkey's imports is energy (general knowledge level); high oil price limits current account improvement, passes through to inflation via PPI. Gold at 4.194.70 $/oz (+0.91%), gram gold at 6.631.67 TL (+0.95%) continues to gain value in environment where US real rates trade in relatively low band (≈ +0.6 points) and with central bank demand (global). While TL-denominated gold price, USD/TRY (49.17, +0.04%) and EUR/TRY (55.42, +0.16%) trade nearly flat, dollar-denominated gold rise pulled TL-denominated gold rise; i.e., rise is not exchange-rate driven but global price driven. This is a background reinforcing the need for real value protection for unhedged local investors.

US Treasury yields: 3M 4.04%, 5Y 5.01%, 30Y 5.63. Curve steepening at long end (5y -1.03%, 30y -0.62%) may reflect Fed cut expectations spreading to long maturities and/or quarter-end portfolio rebalancing. Turkey bond yields not in data block; qualitatively: High policy rate (37%) and inflation risk premium keep TL-denominated bond yields (benchmark 2y, 5y, 10y) high; real return (ex-ante) may be attractive for foreign investor but currency risk (TL appreciation expectation) and liquidity premium (bid-ask spread) erode net return. Foreigners' TL bond (GDS) holdings (no data) at low levels recently; this suggests foreign financing not coming for "carry", and that domestic banks (via Required Reserve/RR mechanism) and individual investors (eurobond funds, B-type funds) are holding them.

7. Transmission Mechanisms: From Macro to Market

The three main transfer channels can be summarised by reconciling them with the data as follows:

1. Interest Rate Channel:
Policy rate (37%) -> Bank funding cost (deposit rate 43.8%, repo/swap cost) -> Lending rates (consumer 64.7%, commercial (no data)) -> Real credit growth (36.3% nominal, ~5-6% real) -> Domestic demand (consumption + investment) -> Company sales (retail sales weak in real terms) -> Business margins (cost pressure + demand weakness) -> Valuation (discount rate high in DCF, growth low -> intrinsic value pressure). For banking sector: Net interest margin (NIM) widens at high rates but credit cost (CoR) increase risk (NPL) and weakening of real credit growth affect return in opposite direction.

2. Exchange Rate Channel:
USD/TRY 49.17, EUR/TRY 55.42, REER 105.45. Exchange rate trading under real appreciation pressure in "yönetilen serbest dalgalanma" (managed float) regime -> Imported input costs (energy, intermediate goods, investment machinery) do not rise/fall in TL terms -> PPI pressure eases (annual 27.38%) -> Pass-through to CPI partial and delayed (monthly CPI 1.84%, PPI 2.07%). However exporter margins squeeze in TL terms (sales price USD/EUR, cost TL), industrial competitiveness erodes. On current account, opposite pressure applies: appreciation cheapens imports and directs domestic demand to imports.

3. Global Liquidity / Capital Flows Channel:
Fed rate (4.0%) and dot plot -> US Treasury yields -> Relative return to EM (spread) -> Foreign portfolio flows (BIST, GDS) -> TL supply/demand -> Exchange rate -> Reserves. VIX 15.31 (low) supports risk appetite; however Fed "higher for longer" narrative and US real rate (ex-ante) staying positive narrows EM spread. Turkey's nominal policy rate (~37%) in upper band within EM; this creates "carry" appeal but real exchange rate appreciation (REER 105) and policy uncertainty (inflation target path down to 5%) harbor "carry trade" unwind (position closure) risk.

8. Reflections on BIST 30: Sector Channels

Banking (Weight ~37-40%): In high policy rate environment NIM (net interest margin) widens nominally; however income from CPI-linker (inflation-indexed) bond portfolio is hedged with inflation. Critical risk: Credit cost (CoR) increase, rise in non-performing loan (NPL) ratio (no data, qualitative), weakening of real credit growth. High deposit cost (43.8%) and required reserve (RR) applications keep funding cost high. Valuation: P/B (price/book) multiples may trade below historical average; distinction between "value trap" risk vs "turnaround" opportunity depends on credit cost trend looking to 2027.

Holdings (Koç, Sabancı etc.): Multi-sector structure, cash flow from banking arms, operational leverage from industrial/energy/retail arms. Holdco discount may widen at high rates; valuation of banking arms critical in NAV (net asset value) calculation. Exchange rate appreciation (REER 105) creates margin pressure on exporter arms (Automotive: Tofaş/Ford, White Goods: Arçelik); decline in imported input costs may partially offset this.

Industry / Exporters (Automotive, White Goods, Steel, Chemicals): REER 105.45 level above 2023-2024 averages; pricing power weak, volume growth critical for margin protection. PPI annual 27.38%, CPI 29.73%; cost inflation (raw materials, energy, labor) pass-through lag to sales prices leads to margin compression. Brent 99 $ oil keeps naphtha/polypropylene costs (petrochemicals) elevated.

Retail / Consumption (Markets, Textile, Auto Sales): Real wage growth (no data, qualitative: inflation 29.73%; minimum wage update is decisive) determines consumer purchasing power. Consumer loan interest at 64.7% suppresses durable goods (white goods, automotive) via the credit channel. Retail sales volume (real series) is up 10.4% annually: consumption demand is lively; however, store-based sales/m2 data (no data) is needed for company margin analysis.

Energy / Oil Refining (Tüpraş): Brent $99.23, crack spread (refining margin) no data; qualitative: High oil price creates inventory gains but TL-denominated profit is subject to currency risk. Refining margins (crack) are shaped by global demand/supply balance.

Real Estate Investment Trusts (GYO/ REITs): In a high interest rate environment, increase discount rate -> NAV is suppressed; however, rental income is indexed to inflation (CPI/PPI linker) -> nominal rent increase preserves cash flow. As long as real interest rates remain positive, GYOs behave as "income" assets rather than "growth" assets; dividend yield may be attractive.

9. Scenarios and Monitoring Framework

Base Scenario (Probability ~55%):

• The Fed stays on hold for a long time along the September SEP path (2026-27 median 4.1%); the first cut only comes onto the table in 2027 if growth slows markedly (25-50 bp), and higher for longer ends.

• TCMB starts to cut the policy rate by 50-100 bp in 2026 Q4 / 2027 Q1 (if a lasting easing of inflation is confirmed).

• Türkiye's real growth is at 2.5-3.0% in 2026 and around 3.0-3.5% in 2027; domestic demand is on a gentle decline.

• The current account moves to a small surplus / slight deficit; reserves in the 60-65 band, in billions of dollars.

• BIST 100 flat/slightly up in nominal terms; real return is negative/zero relative to inflation.

• Data to Monitor: TCMB Inflation Report (September/December), Fed meeting minutes, monthly CPI/PPI series (especially services and rent), monthly current account, weekly reserves, USD/TRY volatility.

Optimistic Scenario (Probability ~20%):

• Global inflation falls rapidly (the energy shock reverses, China's stimulus works), and the Fed starts aggressive cuts (more than 100 bp in H1 2027).

• TCMB cuts early and aggressively (policy is anchored, inflation expectations take hold).

• Strong foreign portfolio inflow (carry + exchange rate gain), the TL appreciates (REER moves above 105), reserves above $70 (seventy billion).

• BIST 100 posts a 20-30% return in dollar terms; banks and holdings stand out.

• Data Triggering the Scenario: If US core PCE falls below 2.5% annually, the Fed signals a "pivot"; if TCMB revises the year-end target below 20% in the inflation report.

Pessimistic Scenario (Probability ~25%):

• US Inflation stays sticky (core PCE 3%+), the Fed holds or raises interest rates; DXY 105+, VIX 20+.

• In Turkey, food/energy shock (FX/climate/geopolitics) -> CPI returns to annual 35%+ level.

• TCMB is forced to raise rates (37-42.5%); the credit crunch deepens, real growth falls below 1% / recession.

• The current account deteriorates (energy imports rise, tourism stagnates), reserves fall below 55, in billions of dollars.

• BIST 100 down 20-30% in dollar terms; bank NPL shock, holding NAV erosion.

• Data Triggering the Scenario: If US monthly core CPI continues at 0.4%+; if Turkey's monthly CPI stays at 2.5%+ (if the annual trend is not broken); if reserves decrease by 1 billion USD+ weekly (this threshold has already been triggered by last week's 1,245 billion USD decline).

Monitoring Framework (Dashboard):
1. Weekly: CBRT reserves, banking sector weekly balance sheet (loans/deposits/RR), VIX, DXY, Brent, Gold, USD/TRY.
2. Monthly: CPI/PPI (subgroups: services, rent, food, energy), Exports/Imports, Current Account, Retail Sales, Industrial Production, Capacity Utilization, Confidence Indices, M3/Credit Growth, Deposit/Loan Rates.
3. Quarterly: GDP (composition: consumption/investment/net exports), Current Account/Financing, Budget Realization (cash-based + transfers), CBRT Inflation Report, Fed Dot Plot/SEP.
4. Event-Driven: CBRT Monetary Policy Committee (MPC) decisions, Fed FOMC, ECB, OPEC+ meetings, Election/Political calendar (as 2028 elections approach).

10. Conclusion and Evaluation

Turkey's economy, in the last quarter of 2026, within the framework of "tight monetary policy," has completed the early stages of disinflation and entered a more challenging second phase where persistent components (services, rent, wages) are slowing. Annual inflation has declined to 29.73%, and the policy rate has been held at 37%, keeping real rates positive; this has been functional in anchoring inflation expectations and improving the current account balance (July period surplus of 36 million USD). However, real exchange rate appreciation (REER 105.45) is eroding exporter competitiveness and industrial employment, making growth dependent on domestic demand (and thus on credit costs).

In the global environment, the Fed's "higher for longer" stance is supported by the relative resilience of the US economy (growth 2.2%, unemployment 4.2%) and sticky core inflation (core CPI 2.4%, core PCE 3.0%). The Euro Area is struggling with weak growth (annual 1.2%, industrial contraction) and financial consolidation challenges. This dilemma maintains the "carry" appeal for emerging market assets, while also bringing the risk of sudden corrections through the dollar direction and global risk appetite (VIX 15.3).

For BIST 30; the banking-heavy index structure, while providing nominal profit growth in a high-rate environment, may be pressured by weakening real credit growth, the possibility of NPL risk emerging toward 2027, and the holding discount, which could compress valuation multiples (P/E, P/B). Industrial/exporter sectors are squeezed between currency appreciation and weak global demand (EU stagnation). Retail/consumer-focused companies are struggling with real income erosion and consumer credit costs (64.7%).

The next 3-6 months will be a critical window where the "last mile" success of disinflation, the timing of the CBRT's rate cuts, and the Fed's "pivot" moment intersect. What analysts/investors should focus on: Persistence of inflation by components (services/rent), real credit growth trend, quality of current account financing (portfolio vs FDI vs debt), reserve adequacy, and alignment of the real effective exchange rate level with structural balances.

Note: This article is prepared for educational and analytical purposes; it does not contain investment advice, buy-sell recommendations, or target price/stop-loss for any financial instrument. Past performance does not guarantee future results; macroeconomic scenarios are probabilistic, not certainties.

Data Base (key indicators used in analysis)