Macroeconomic Evaluation

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1. Global Macroeconomic Outlook

The two main engines of the global macroeconomic picture, the US and the Eurozone, are showing a clear divergence as they enter the final quarter of 2026. The US economy maintained momentum above its potential, recording quarterly growth of 2.2% and annual growth of 2.2% in the second quarter of 2026. However, the details underlying this growth indicate that the labor market is slowing down, and even that the "soft landing" scenario is evolving towards a "jobless growth" risk, as the unemployment rate rose to 4.2% in September 2026 data and non-farm payrolls (NFP) increased by only 29 thousand people (estimate 90 thousand, previous 133 thousand). Although consumer spending appears resilient with a quarterly growth of 3.2% (Q2), consumer confidence fell from 88.6 to 81.9 in September, reflecting households' concerns about future income.

On the inflation side, while headline CPI in the US is at an annual 3.7% (September) and core CPI at 2.6%, the Fed's preferred PCE deflator remained at an annual 3.4% and core PCE at 3.0%. The critical data that draws attention is the Producer Price Index (PPI) realizing at an annual 6.3% (September, estimate 5.3%) and showing a monthly increase of 1.3%. This indicates that cost pressure in the production stages is still high and the "last mile" challenge of inflation continues. While the Fed kept its policy rate at 4.0% (October 18), the September dot plot data points to 4.1% for the 1st year and 3.9% for the 2nd year; this raises expectations of fewer cuts (or later cuts) than the market is pricing in. The US 30-year Treasury yield remaining at 5.44% and the 5-year at 4.90% shows that the forward yield curve is in a "bear steepening" trend (long-term yields rising faster than short-term yields), thus indicating an increase in long-term real interest rates and term premium. The VIX rising by 21.4% to 20 is concrete evidence of how this uncertainty suppresses risk appetite.

The Eurozone, on the other hand, appears to be in structural stagnation. Although quarterly growth of 0.6% and annual growth of 1.2% were recorded in the second quarter, the annual decline of -1.1% in August industrial production (estimate -0.1%) and the annual growth of only 0.8% in retail sales reveal the weakness on the demand side. While headline inflation is at an annual 3.8% (September) and core at 2.5%, the pressure from energy and intermediate input costs persists, as PPI is at an annual 8.2% (August). The ECB kept its policy rate at 2.65%. With M3 money supply growth at an annual 3.5% and credit growth to companies at 4.2%, the credit channel is weak but not broken. However, with consumer confidence at -16.5 points and the economic sentiment index at 97.9 points, both the household and corporate sectors remain in a pessimistic outlook. Although the current account balance gave a surplus of 36.5 billion Euros in July, the August trade balance deficit of -16.1 billion Euros reflects the combination of energy imports and weak external demand. The DXY remaining relatively stable at 101.84 shows that a balance is being struck between the interest rate differential between these two blocks (approximately 135 basis points) supporting the dollar and the Eurozone's current account surplus supporting the euro.

In summary; the global liquidity environment is being shaped between the US's "high interest rate, high yield" dynamism and the Eurozone's "low growth, structural inflation" static nature. High long-term US Treasury yields increase the cost of global risk-free capital, restricting flows entering emerging economies (EM).

2. Turkey's Macroeconomic Outlook

As of September 2026 data, the Turkish economy is in the "mid-point" stage of the disinflation process; that is, the decline of inflation from its peak has begun, but a long distance still needs to be covered to reach the target (around 5%). According to TUIK data, September CPI realized at an annual 29.73% (estimate 30.3%, previous 31.51%) and monthly 1.84% (estimate 2.3%). Monthly inflation coming in below the estimate and the 29.73 percentage point drop in annual inflation are the strongest evidence that disinflation continues. PPI also shows that cost-side pressures are easing, but still carry the risk of transmission to consumer prices, with annual 27.38% (previous 27.95%) and monthly 2.07% (previous 2.57%).

The CBRT kept its policy rate at 37% in the September meeting (September 10), raising the real policy rate (relative to annual inflation) to approximately +7 points, and to higher levels according to forward-looking inflation expectations. This proves that the central bank maintains its "tight monetary policy" determination and builds a shield against the risk of early easing. Growth dynamics, on the other hand, paint a complex picture: while 2026 Q2 GDP grew by 1.1% quarterly and 2.3% annually (estimate 2.9%), this performance fell short of expectations. While industrial production continued to contract in August with -1.0% monthly and -1.86% annually, retail sales grew by 1.4% monthly and 10.1% annually in August, indicating that consumption demand is still nominally vibrant, but is experiencing compression in real terms (relative to CPI of 29.73%). While the unemployment rate stood at 7.7% in August, the capacity utilization rate rose to 74.2% in September (previous 73.5%), showing that the operational slack in industry still exists and that investment demand is not being encouraged due to credit costs and uncertainty.

The current account balance gave a surplus of 4.05 billion US Dollars in August (previous ~0), exhibiting the strongest monthly performance in recent periods. Behind this development, the role of tourism revenues (Q2 15.9 billion $) and gold trade (reflected in the import/export difference, although its net effect cannot be isolated in the dataset) is significant. Foreign exchange reserves rose to 64.57 billion $ as of the week of October 9 (previous 60.33 billion $), indicating that the CBRT is a net buyer under market conditions and that the reserve buffer is strengthening. It should be noted that the Real Effective Exchange Rate (REER) rose to an index of 105.45 in September (2003=105.45), meaning that the nominal exchange rate (USD/TRY 49.52, EUR/TRY 55.70) cannot fully compensate for the inflation differential, thus the Turkish Lira has gained real value, which could weaken export competitiveness, but suppresses imported inflation.

3. Domestic Demand, Credit and Liquidity

The transmission channels of monetary policy on domestic demand give a clear "tightening" signal through the provided data. While the CBRT policy rate is 37%, the levels of banks' deposit interest rate (August/September data: 43.12%) and consumer loan interest rate (August: 64.74%) indicate that the real cost (relative to inflation) is high. Although credit growth showed a slight slowdown trend in August with an annual 36.32% (previous 36.60%), nominal growth is still above inflation (annual 29.73%). However, M3 money supply growth declined to an annual 26.58% (previous 29.78%) in the early October data, revealing that real money supply (M3 growth - Inflation) is in negative territory, meaning that monetary policy is "truly" tight.

This mechanism operates through the following chain: High policy rate -> Bank funding costs increase -> Loan interest rates (especially consumer/credit card at 37%) increase -> Household and SME access to financing becomes difficult/cost increases -> Durable consumption and investment expenditures are postponed -> Total domestic demand is suppressed -> Capacity utilization rate (74.2%) remains below potential -> Pricing power weakens -> Inflation declines. The contraction in retail sales in real terms (10.1% nominal growth, around -15% real contraction with 29.73% inflation) is the most concrete indicator that this channel is working. The slowdown in bank loan growth, combined with the CBRT's macroprudential measures (credit growth limits, guarantee fund quotas, etc.), shows that demand management through the credit channel is effective. However, the "breaking point" of this process should be monitored in SME cash flows and unemployment data.

4. Global Risk Appetite and Interest Rate Expectations

Global risk appetite has entered a distinct "risk-off" mode in mid-October data. The single-session jump in the VIX from 16.46 to 19.99 (+21.4%) shows that market participants have begun pricing in an uncertainty premium driven by the combination of US macro data (weak NFP, high PPI) and geopolitical risks (energy prices). The US 30-year Treasury yield remaining at 5.44% and the 5-year at 4.90% points to an increase in the "term premium"; this brings with it the risk of divergence between the Fed's rate cut roadmap (dot plot: Year 1 4.1%, Year 2 3.9%) and market pricing (faster cuts).

The DXY trading relatively calmly at 101.84 is the result of the rise in US Treasury yields supporting the dollar being balanced by relative weakness in the Eurozone and Japan. Although investment-grade (IG) and high-yield (HY) credit spreads are not included in the dataset, the rise in the VIX and the increase in long-term yields allow us to estimate that credit spreads have begun to widen. This environment is negative for emerging market (EM) portfolio flows; foreign investors tend to exit assets that promise high real returns (Turkey real rate ~7-10% range) but demand a high risk premium. The BIST 100's -2.89% and BIST 30's -2.86% decline on October 16 is an example of this global risk-off flow being reflected in the local equity market. The Fed's November/December meetings and the November inflation data will be critical catalysts determining the direction of this risk appetite.

5. Budget and External Balance

On Turkey's twin balance (fiscal and current), a positive shock is observed on the current account side, while a structural difficulty is observed on the fiscal side. The August current account balance posted a surplus of $4.05 billion, and the 12-month cumulative deficit is closing rapidly. This performance has been supported by exports rising to $25.98 billion in September (previous 23.47), imports rising to $31.21 billion (previous 28.71), and the trade balance being kept relatively under control at -$5.23 billion. Tourism revenues at $15.9 billion in Q2 point to the strength of the services balance. The rise in foreign exchange reserves to $64.57 billion (October 9) shows that the CBRT is adding to its reserve stockpile by being a net buyer during periods of current account surplus. This is the most important buffer reducing external financing vulnerability (rollover risk).

However, the budget balance posted a deficit of -TL 532.2 billion in September (previous +TL 12.9 billion), bringing with it the risk of a growing year-to-date cumulative deficit. The scenario where interest expenses (domestic borrowing cost at 37%+ levels) pressure the budget, tax revenues may decline in real terms (due to inflation), and pre-election spending pressures may increase (2028 normally, but early election possibilities may be priced in by the market) will test the alignment of fiscal discipline with monetary policy (policy mix). If the budget deficit is financed through central bank borrowing (seigniorage) or heavy issuance that pushes market rates higher, the disinflation process could be put at risk. The current account surplus can offset this risk to some extent (current account surplus = savings - investment = fiscal balance + private sector balance), but if private sector savings are insufficient, external borrowing needs may re-emerge. Monitoring the short-term external debt stock / reserves ratio (not in the dataset, qualitative) is of critical importance.

6. Energy, Commodities, Foreign Exchange and Bond Markets

Energy and commodity markets determine input costs, which are the backbone of inflation and the current account balance. Brent crude rose to $109.86/barrel on October 16 (+3.7% daily increase), following an upside-risk trajectory driven by the combination of global demand expectations (China stimulus, US economy) and OPEC+ supply discipline. WTI is tracking at $99.02. This level of oil prices creates cost-push inflation risk for a net energy importer like Turkey, through the import bill affecting the current account balance and PPI/CPI. While exchange rates (USD/TRY 49.52, EUR/TRY 55.70) are trading relatively stable in nominal terms (daily change ~0%), the REER rising to 105.45 shows that the exchange rate does not fully reflect the inflation differential (real appreciation). While this helps disinflation by suppressing imported input costs, it squeezes exporters' margins.

Gold is trading at record levels of $4.181 per ounce, while gram gold is at TL 6.656. These gold levels can be explained by central banks' (especially non-G7) reserve diversification habits, expectations that real rates will remain negative in the long term, and geopolitical safe-haven demand. For Turkey, gold can affect the current account outlook by being reflected in the "net errors and omissions" item or as the difference between gold imports/exports. The rise in US Treasury yields (30Y 5.44%) increases the yield demand premium (risk premium) on emerging market bonds (EMBI) and local currency bonds, narrowing the CBRT's room for rate cuts. Local bond market yields (not in the dataset) are likely priced with policy rate + liquidity premium + risk premium components.

7. Transmission Mechanisms: From Macro to Market

The transmission of macroeconomic data to financial markets and the real sector operates through three main channels:

1. Faiz Kanalı (Policy Rate -> Credit Cost -> Domestic Demand -> Corporate Earnings -> Valuation):
CBRT policy rate (37%) -> Bank deposit cost (43.1%) and credit cost (64.7% consumer, commercial loans lower but still high) -> Real credit cost positive and high -> Companies deferring/canceling capital expenditures (CapEx) -> Capacity utilization remaining at 74.2% -> Sales growth slowing (Industrial Production Y/Y -1.86%) -> Unit fixed costs divided over fewer units -> Operating margins (EBITDA margin) contracting -> Cash flows revised in DCF models -> Compression in BIST valuations (P/E, EV/EBITDA). Except for the banking sector (Net Interest Margin - NIM expands), high rates act as a "cost" factor for almost every sector.

2. Kur Kanalı (Exchange Rate -> Import Input Cost -> Inflation -> Real Wages/Consumption):
While the nominal USD/TRY is managed around 49.5 -> REER 105.45 (appreciated) -> Controlled increase in imported intermediate input/energy costs in TL terms -> PPI Y/Y 27.38% (while below CPI) -> Imported inflation suppressed -> However, in the event of an oil/commodity shock (Brent 110$+), if the exchange rate shield is removed -> Pass-through accelerates -> CPI targets come under risk -> CBRT is forced to postpone rate cuts -> The interest rate channel (Channel 1) persists longer.

3. Küresel Likidite ve Sermaye Akımı Kanalı (Global Rates -> Risk Premium -> Portfolio Flows -> FX Reserves / Domestic Liquidity):
US 10Y/30Y yields rising (5.44%) + VIX increase (20) -> EM risk premium increase -> Foreign investors selling BIST/government bonds / reducing positions -> Weakening TL demand / FX pressure -> CBRT intervention via reserve sales or rate hikes -> Domestic liquidity tightening -> Credit channel (Channel 1) strengthening. The current account surplus (+$4 billion) breaks this cycle; eliminating the financing need of the current account absorbs the impact of foreign capital outflows on the exchange rate, allowing the CBRT to keep its policy rate independent of "external necessity."

8. Reflections on BIST 30: Sector Channels

In an environment of high real rates, real exchange rate appreciation, and slowing domestic demand, BIST 30 sectors will be affected asymmetrically:

• Banking (Weight: ~37-40%): Winner. In the asset-liability repricing process, the high policy rate feeds the interest income side of the loan portfolio (especially CPI-linkers, TL loans) faster than the deposit cost (deposit cost 43%). Net Interest Margin (NIM) remains at historical highs. However; Credit risk cost (CoR) increases with a lag (NPL ratios are reflected with a 12-18 month delay), stage 1/2/3 classification and KGF quotas constrain growth. Valuation: Low P/E (5-7x) but "value trap" risk (NIM contracts when rate cuts begin).

• Export-Oriented Industrials (Automotive, White Goods, Steel, Chemicals): Loser. REER 105.45 (real appreciation) -> Distortion between FX-based revenue / TL costs (labor, energy, credit) -> Margin pressure. EU industrial production -1.1% (August) -> Weak external demand. High TL credit costs (40-50%+ commercial) -> Increase in working capital costs. Oil/Commodities (Brent 110$) -> Increase in raw material costs (Chemicals, Steel). Even if sector rotation moves from "domestic market" to "external market," external market conditions (EU stagnation) do not support it.

• Holding / Diversified: Neutral / Structural Discount. NAV (Net Asset Value) discount causes the exchange price to trade below NAV (holding discount). High interest rates increase the financing costs of holdings (borrowing at the holding level) and pressure dividend income (non-banking).

• Retail / Consumption (Food, Textile, Durable Consumer Goods): Loser. If real wage growth data (not in the dataset, qualitative) remains below inflation -> Real purchasing power declines. Retail sales volume is contracting in real terms. Consumer credit at 8.28% -> Financing for durable goods (white goods, autos) is almost impossible. If companies cannot maintain pricing power, margins erode.

• Real Estate / CONSTRUCTION / REITs: Extremely Risky. High credit costs, mortgage rates -> Lack of demand. High input costs (Steel, Cement) -> Project profitability is difficult. Although REITs (GYO) have rental income indexed to inflation, financing costs and vacancy risk (office/retail) pressure them.

9. Scenarios and Monitoring Framework

The uncertainty of the future should be modeled around three main scenarios with a data-dependent approach. These scenarios are not "predictions" but "probability weights" and "triggers to monitor".

Base Scenario (Probability ~55%): Gradual Disinflation and Selective Easing.

• Mechanism: CPI enters the 29.73-26% range by December 2026 and the 15-18% band by end-2027. The CBRT makes its first 37-500 bp cut in Q1 2027 (March/April). The current account surplus remains in the $10-15 billion band over 12 months. Budget discipline (tax reform/expenditure control) is achieved. Brent trades in the $90-100 band.

• Market Impact: BIST 100 with earnings-focused valuations (earnings yield ~15-18%) has a 15-20% potential recovery before rate cut expectations (Q4 2026/Q1 2027). Banks outperform (NIM peak), exporters are neutral. TL real appreciation continues, nominal exchange rate slow increase (crawl).

• Invalidation: If October/November CPI comes in above 2.5% monthly OR if the "higher for longer" tone hardens at the November Fed meeting OR if Brent breaks above $115.

Optimistic Scenario (Probability ~20%): Rapid Disinflation and Early Pivot.

• Mechanism: Global energy prices fall (Brent <$85), US recession deepens -> ECB cuts rapidly -> Fed begins aggressive cuts from September 2027 (Terminal rate below 3.0%). Turkey's CPI falls below 20% by January 2027. The CBRT begins early cuts in December 2026 / January 2027. Foreign portfolio inflows intensify (Carry trade + Capital gains). Reserves exceed $80 billion.

• Market Impact: BIST 100 has 30-40% upside potential (P/E expansion + TL appreciation). Sectors other than banks (Industrials, Holdings, Retail) lead. 10-year TL bond yield falls below 30%.

• Invalidation: If monthly CPI in any month exceeds 3%. If Fed dot plot stays above 4.0%.

Bearish Scenario (Probability ~29.73%): Inflation Trap and External Shock.

• Mechanism: Geopolitical risk (Middle East / Russia-Ukraine) -> Brent $120+ -> PPI/CPI second round effects -> CPI stays above 29.73% at year-end. Fed signals "No cut 2027" -> DXY 105+, EM outflows. TCMB forced rate hike (37-42.5%). Budget deficit explodes with interest expenses -> Central bank financing (Seigniorage) risk. Current account surplus turns into deficit. TL nominal depreciation (60-65/USD).

• Market Impact: BIST 100 falls 10-15% in TL terms, 30-40% in USD terms. Banks face NPL shock (CoR increase) -> P/B below 0.5x. Bond yields 50%+. CDS 500+ bp.

• Invalidation: If Brent stays below $95 OR if November monthly CPI falls below 1.5%.

Monitoring Framework (Next 4-6 Weeks):
1. November 3 CPI (October data): Is monthly trend below 1.5%? (Critical).
2. TCMB November Meeting (Usually 3rd week of the month): Forward guidance language: "Tight stance will be prolonged" vs "Can tighten if necessary".
3. US November FOMC (November 7) and CPI (November 13): Will the Fed pause? Is Core CPI below 0.3%?
4. Brent Oil: $ 105 support / $115 resistance.
5. Current Account Balance (September data - early November): Is it still running a surplus?
6. Budget Realizations (October - early November): Ratio of interest expenses to tax revenues.

10. Conclusion and Evaluation

As of October 2026, the Turkish economy is decisively progressing on the "painful but effective" disinflation path brought about by high real interest rates (policy rate 37%, real ~+37%-10%). The September CPI data (1.84% monthly, 29.73% annual) indicates that the peak inflation point has been left behind, but the "last mile" challenge (food, rent, services inflation, wage-increase cycle) still persists. On the external balance side, the transition to a current account surplus and reserve accumulation create a safety net that significantly reduces macroeconomic fragility; however, this picture is balanced by the structural rise risk in energy prices (Brent ~$110) and the effect of real exchange rate appreciation (REER 105.45) on export competitiveness.

On the domestic demand side, the contraction of M3 and credit growth in real terms shows that the transmission mechanism of monetary policy is working, but the lagged effects of this process on SME cash flows and employment data need to be monitored until mid-2027. The course of the budget balance remains the most critical area where the alignment of monetary and fiscal policies (policy mix) will be tested.

The global environment, on the other hand, keeps the liquidity cost high for emerging markets due to the US's "higher for longer" description and the structural increase in long-term yields (term premium). VIX levels around 20 remind us of the fragility of risk appetite.

For BIST 30; while the banking sector is the ultimate beneficiary of the high interest rate environment (NIM expansion), credit risk (NPL) constitutes a delayed threat factor. Export-oriented industry and consumption-focused sectors are experiencing margin pressure under the distortion of real exchange rate appreciation and high real credit costs. Market pricing (BIST 100 ~11.700) seems to be pricing in the "base scenario" and "late and gradual easing" rather than the "pessimistic scenario".

Important Note: This article is a macroeconomic evaluation text prepared for educational and analytical purposes, using definitive macro data and market snapshots dated October 19, 2026. The scenarios and mechanism analyses contained in the content are not investment advice, buy-sell orders, or portfolio management recommendations.It is not.. Investment decisions should be made as a result of personal risk tolerance, time horizon, and an independent financial advisory process.

Data Base (key indicators used in analysis)