Macroeconomic Evaluation

1. Global Macroeconomic Outlook

In the global macro picture, the diverging dynamics of the US (ABD) and the Eurozone continue to shape risk appetite and liquidity conditions. The US economy posted2.2% quarterly and2.2% annual growth in the second quarter of 2026, delivering a performance above potential; however, the sustainability of the consumer spending (3.2% quarterly) that drives this growth is being questioned by weakening labour market signals. In the September ADP/NFP data, job creation stayed at just 29 thousand, the unemployment rate rose to4.2% and JOLTs job openings fell to 7,079 million. With broader unemployment (Genişletilmiş işsizlik, U-6) at7.6%, wage growth has slowed to3.0% annually. This picture is signalling labour market loosening that supports the Fed's "soft landing" scenario; however, consumer confidence fell to 81.9 points in September (forecast 89.2), reflecting household concerns about future income.

On the inflation side, in the US headline CPI was3.7% (September) and core CPI was at the2.6% level; the PCE deflator came in at3.4% on an annual basis and core PCE at3.0%. The2% level targeted by the Fed is still far off. Market expectations remain at4.6% for 1-year inflation and3.4% for 5-year inflation; this shows that the inflation risk premium has not fully gone away and that central bank credibility is being tested. With the Fed holding the policy rate at4.0% (as of 20 October), the dot plot projections (September 16 data) point to4.1% for 1 year and3.9% for 2 years; this indicates that forward rate cuts are being priced in, while the "higher for longer" narrative is still valid. The US Treasury yield curve should be read in this framework: 3-month4.08%, 5-year4.94%, 30-year5.43%; the rise in long-term yields (term premium) shows that financial conditions are still tight and that the fiscal risk premium (borrowing needs, current account deficit -246 Billion $ in Q2) is being priced in.

The Eurozone, meanwhile, is trapped in a structural slowdown. Although Q2 recorded quarterly growth of0.6% and annual growth of1.3%, industrial production contracted in August at -0.5% on the month and -1.1% on the year; retail sales were weak at0.8% on the year. Inflation rose to3.8% in September (core2.5%), while the ECB kept its policy rate at2.65%. Producer prices (ÜFE) ran at8.2% on the year in August, indicating that cost pressure is still alive. A current account surplus of 36.5 Billion € (July) and a trade deficit of -16.1 Billion € (August) show that the external balance is still resilient; however, an economic expectations index at 97.9 (September) and consumer confidence at -16.5 (September) paint a fragile picture in terms of domestic demand. Liquidity expansion is slow but positive, with M3 money supply growth of3.5% (August) and credit growth (companies4.2%, households3.1%). In terms of global liquidity, DXY at 101.70 and VIX easing to 17.39 show risk appetite in a measured improvement; however, the search for direction in US long-term yields (30-year5.43%) is a reminder of the fragility of that improvement.

2. Turkey's Macroeconomic Outlook

Türkiye's economy is going through the "medium-term difficulty" stage of the disinflation process within the framework of a tight monetary policy. The TCMB kept its policy rate at37% at its September 10 meeting, taking a "pause" in the tightening cycle that has continued since August 2024; however, the real interest rate is still in positive territory (annual inflation29.73%, policy rate37% -> real rate ~5.6%). September TÜFE data came in at1.84% monthly and29.73% annually (below the30.3% forecast), showing that the disinflation trend continues; however, monthly inflation remaining at1.84% (one of the lowest monthly readings in the June-to-June period) is still a risky level for the year-end targets. ÜFE at27.38% annually (monthly2.07%) is running below TÜFE, indicating that cost-side pressure has eased; but monthly ÜFE remaining above TÜFE signals that the risk of producer costs being passed on to consumer prices is still alive.

Growth dynamics are sending mixed signals. GDP grew 1.1% quarter-on-quarter in Q2 2024 (previous 0.3%), while annual growth slowed to 2.3% and stayed below the forecast (2.9%). This shows that demand-restraint policies (high interest rates, credit tightening) in the first half of the year had a concrete impact on growth, while the net export contribution (through import suppression) supported growth. Industrial production contracted 1.0% month-on-month and 1.86% year-on-year in August, indicating that the manufacturing industry felt the demand shock. The capacity utilisation rate rose to 74.2% in September, recovering slightly; business confidence (102.0) and consumer confidence (91.9) are still in the pessimistic zone (below 91.9). The unemployment rate was at 7.7% in August; economic activity rate 52.5%. These figures show that the labour market has still not contracted; but the growth rate is not at a level that would bring unemployment down.

There is a marked improvement on the external balance side: the August current account balance was a 4,053 billion $ surplus (previous ~0), and the 12-month cumulative current account balance is closing rapidly. September exports 25.98 billion $, imports 31.21 billion $; the trade deficit is relatively controlled at -5.23 billion $. Tourism revenue is strong at 15.9 billion $ in Q2. Foreign exchange reserves have risen to 64.57 billion $ as of the week of 9 October (previous 60.33 billion $). This picture shows that the improvement in the balance of current transactions and the accumulation of reserves increase the buffer capacity against external shocks. The budget deficit, however, has deepened in September at 532.2 billion TL (the previous month had a +12.9 billion TL surplus); the cumulative deficit in the first 9 months of the year creates a risk factor to be monitored relative to GDP.

3. Domestic Demand, Credit and Liquidity

The transmission channels of monetary policy to domestic demand point to a clear "tightening" signal in the data. According to TCMB EVDS data, as of August bank loans grew by36.3% annually (previous36.6%), while M3 money supply growth slowed to26.6% annually in the October 1 data (previous29.8%). This indicates an environment in which nominal credit growth is close to zero in real terms (inflation29.73%), and M3 is even contracting in real terms. While the policy rate is37%, the deposit rate (weighted mainly by TL time deposits) is43.12% in the October 1 data; the consumer loan rate stands at64.74% in August. This pricing shows that banks are passing their risk premiums and funding costs on to loans; therefore, the real cost of credit (ex-post real interest rate) remains at high levels.

The transmission mechanism works as follows: policy rate37% -> bank funding cost (deposit rate43%+) -> lending rates (commercial ~43.12%-60, consumer64%+) -> real credit cost (once inflation expectations settle) -> deferral of consumer durable and housing spending + rise in corporate investment and working capital cost -> suppression of domestic demand. While retail sales grew10.1% year-on-year in August (monthly1.4%), most of this growth comes from the inflation effect (nominal growth); real retail sales remain weak. The contraction in industrial production and capacity utilisation staying at74% indicate that firms are following a stock-drawdown strategy instead of restocking and are postponing investment. The slowdown in credit growth (from36.6% to36.3% year-on-year) shows that banks are favouring risk-weighted assets (protecting CET1 adequacy); TL liraisation incentives (reserve options, TL liraisation ratios) indirectly support the credit channel but suppress the interest rate channel.

4. Global Risk Appetite and Interest Rate Expectations

Global financial conditions are in a measured easing, according to October 20 data. VIX has retreated to 17.39 with a5.7% decline, showing that the "fear" index is trading at low levels and that market volatility is being suppressed. DXY stands at 101.70 with a0.27% decline; this indicates that US rate expectations (dot plot: 1 year4.1%, 2 years3.9%) are coded by markets as having "peaked", so the dollar's weakening bias is still valid. The US (ABD) bond yield curve is inclined toward "bear steepening" (long end rising while the short end is stable): 30-year5.43%, 5-year4.94%. This shows that terminal rate expectations remain high even if the Fed starts cutting rates, and that fiscal dominance (borrowing, current account deficit) and term premium demand are pulling long-term yields up.

Although investment grade (IG) and high yield (HY) credit spreads are not included in the data block, the decline in VIX and the3.2% rise in BIST suggest that credit spreads have narrowed (the risk premium has fallen). This environment increases the appeal of "carry trade" for foreign portfolio flows: the real interest rate on TL is positive (policy rate37% - inflation29.73% ≈5.6%), which is still attractive for foreign investors willing to take currency risk. However, if the Fed's rate projections include an expectation of cuts for end-2026/early-2027 (dot plot 2-year3.9%), the "unwind risk" of the carry trade is increasing. The rise of BIST 100 to 11.797 and BIST 30 to 14.676 shows that foreign buying power (or local institutional buying) is moving in line with risk appetite; however, the sustainability of this flow depends on the timing of the Fed's first rate cut and the US 10-year Treasury yield falling below4%.

5. Budget and External Balance

The September data on the budget balance (-532.2 billion TL) shows a marked deterioration. The ratio of the cumulative budget deficit to GDP in the first 9 months of the year (no GDP data in the block, qualitative) is a critical indicator to monitor. On the revenue side, nominal tax revenues are rising in an inflationary environment (no tax revenue data in the block), while on the expenditure side interest costs (high stock of debt), personnel wages (raises), social transfers and investment spending are creating pressure. Growth of the budget deficit in local currency could push market interest rates (government bond yields) higher if it is financed through treasury issuance (the TCMB does not finance it directly), which may create a crowding out effect on the private sector.

The external balance continues to be the "bright spot". The August current account balance at a 4.05 billion $ surplus shows that the 12-month cumulative current account deficit has almost closed (or even moved into surplus). Exports 25.98 billion $ (September), imports 31.21 billion $; the trade deficit is relatively low at -5.23 billion $. Tourism revenue of 15.9 billion $ in Q2 is the engine of the current account balance. Foreign exchange reserves have risen to 64.57 billion $ (9 October), widening TCMB's "safety net". Since net reserve position (excluding swaps) is not given separately in the data block, a qualitative assessment: the increase in gross reserves is achieved through the combination of the current account surplus and portfolio inflows. From an external financing fragility standpoint, the short-term external debt stock (no data) and the maturity profile of banks/companies are critical. The current account surplus is a buffer against the structural fragility of the balance of current transactions (energy imports, intermediate goods inputs); however, if global growth slows (EU industry -1.1%) and weakens export demand, the risk of the current account slipping back into deficit still remains.

6. Energy, Commodities, Foreign Exchange and Bond Markets

Commodity markets are pricing in global growth concerns. Brent fell0.5% to 109 $/barrel, WTI fell5.45% to 98 $/barrel. This pullback in oil prices is caught between US/China demand concerns and expectations of OPEC+ supply discipline. For Türkiye, the oil price is one of the most critical external inputs for the current account balance and inflation. The 109 $ level is above year-start forecasts (generally the 80-85 $ band); this is a reminder of the fragility of the current account recovery under the "energy bill" risk. Gold at 4.143.50 $ per ounce (-0.40%), gram gold 6.603.40 TL (-0.31%). Gold holding the 4.140 $ band in dollar terms is the result of the balance between central bank demand (reserve diversification), the geopolitical risk premium and real interest rate expectations (US 10-year real yield).

In the foreign exchange market, USD/TRY 49.57 (+0.09%), EUR/TRY 55.73 (+0.27%). The TL's level of 105.45 (2003=100) in the September real effective exchange rate (REER) data shows that the exchange rate is still in the "appreciated" / "overvalued" zone in real terms; that is, despite the improvement in the current account balance, the currency remains strong relative to fundamentals (PPP). This indicates that TCMB's exchange rate policy (no FX sales, FX purchases) and the real interest rate differential (around5.6%) support the TL; however, if the current account surplus does not persist, the sustainability of this level is weak. There are no local bond yields in the data block for the bond market; however, US 5-year yields of4.94% and 30-year yields of5.43% serve as a reference point for emerging market bond yields (EMBI). Türkiye's CDS (no data) and Eurobond yields will be shaped by the Fed cut expectations and local real interest rate dynamics.

7. Transmission Mechanisms: From Macro to Market

Macroeconomic variables are transmitted to financial assets through three main channels:

1. Faiz Kanalı (Policy Rate -> Credit Cost -> Domestic Demand -> Corporate Earnings -> Valuation):
Policy rate37% -> Bank deposit cost43.12% / Loan cost (Consumer64.7%, Commercial ~50%-55) -> Real cost of credit (Inflation expectation ~30%-35 -> Real interest rate ~5%-10) -> Delay/cancellation of consumer/company spending -> Decline in company sales volume / Margin pressure (input cost exchange rate/inflation, selling price demand elasticity) -> Increase in the discount rate (WACC) of expected cash flows (DCF) and decrease in growth (g) -> Compression of valuation multiples (P/E, EV/EBITDA). Apart from the banking sector (interest margin widens), sectors with high leverage and low pricing power (retail, durable consumer goods, construction) are the most affected through this channel.

2. Kur Kanalı (Exchange Rate -> Import Input Cost -> Inflation -> Real Wages/Consumption):
USD/TRY 49.57, EUR/TRY 55.73, REER 105.45. Holding the exchange rate at these levels keeps imported input costs (energy, intermediate goods, investment machinery) high in TL terms. Monthly ÜFE of2.07% (above TÜFE at1.84%) shows that this pass-through is still ongoing. If there is an exchange rate crash (TL depreciation) -> ÜFE -> TÜFE pass-through (pass-through ~0.3%-0.5 in the literature) -> erosion of real wages -> consumer demand is suppressed even further. The TCMB does not target the exchange rate; however, reserve accumulation and the current account surplus act as a buffer against excessive currency volatility.

3. Küresel Likidite / Sermaye Akımı Kanalı (Global Rates -> Risk Premium -> Capital Flows -> Asset Prices):
Fed rate4.0% / 2-year projection3.9% -> US 5y/30y yields (4.94%/5.43%) -> Global risk-free rate -> Emerging market (EM) risk premium (EMBI spread) -> Demand function for foreign investors' TL assets (Eurobond, stock, government bond). VIX 17.39 (low) -> High risk appetite -> Positive portfolio flows -> BIST +3.2%, appreciation pressure on the TL. This mechanism works in the "carry" direction until the Fed makes its first rate cut (or until the market unwinds its cut pricing); however, it is the most fragile channel and can reverse at the moment of a "Fed pivot".

8. Reflections on BIST 30: Sector Channels

Sectoral divergence is clear in an environment of high interest rates / disinflation / shrinking domestic demand / strong currency / current account surplus:

• Banking: The only sector gaining net interest margin (NIM). The high policy rate is boosting interest income during the asset-liability repricing process (TL loans growing by37%). The cost of deposits (43%) is high, but lending rates are higher. Credit risk cost should be monitored (NPL ratio: no data, but there is a risk of an increase in a tightening environment). Net interest margin (NIM) may have peaked in 2024; the 2025 cut expectation brings margin compression.

• Holdings / Diversified Industrials (Çeşitli Sanayi): Margins are under pressure from weakening domestic demand (retail real sales are weak) and imported input costs (FX/CPI). However, exporters with holdings (FX protection) and those with energy/commodity positions (oil refiners, steel) are advantaged if they can pass input costs on. The performance of the portfolio companies of the holdings with weight in BIST 30 (KCHOL, ISCTR etc.) is critical.

• Retail / Durable Goods: Highest interest rate sensitivity. Consumer credit64.7% -> Housing/appliance/auto credit has almost stopped. Real wage erosion + low confidence -> Rising savings ratio -> Lower sales volume. Stock-clearing activities are squeezing margins.

• Construction / Real Estate (REITs): High credit costs are raising project financing costs; sales are made in installments/in cash. REITs (GYG) have inflation-indexed rental income (CPI link) -> There is income protection; however, financing costs and vacancy rates are a risk.

• Automotive / Durables: Export-focused companies (Ford Otosan, Tofaş, Arçelik) are balanced between currency protection and external demand (EU slowdown risk). Those focused on the domestic market are tough.

• Technology / Software / Defense: Low indebtedness, high growth, export-oriented (foreign currency income), low interest rate sensitivity. The structural growth story continues; valuations (P/E) are high, but it will be the segment that appreciates the most once interest rate cuts arrive.

9. Scenarios and Monitoring Framework

Base Scenario (Probability ~55%):
The CBRT keeps its policy rate at 37% until Q1 2027. Annual inflation slowly declines to the 29.73-30 band (monthly ~1.5-1.8%). Real interest remains in the 5-7% band. Domestic demand stays weak (GDP growth 2024 ~2.5-3.0%). The current account imbalance is under control (surplus/balance). Fiscal discipline is moderate (deficit 5-6% of GDP). The Fed starts cutting in H1 2027. BIST is sideways / slightly rising (carry-supported). USD/TRY gradually depreciates in real terms toward the 49,569-55 band (soft landing).
To Watch: Monthly CPI/PPI trend (is it below 1.5% monthly?), CBRT communication (rate cut signal), Fed dot plot updates, 12-month cumulative current account balance, Reserve flows.

Optimistic Scenario (Probability ~20%):
Inflation declines rapidly (annual below 29.73 in Q1 2027). The CBRT starts early rate cuts (Q4 2026 / Q1 2027). Real interest is still positive but falls. Domestic demand recovers (credit growth turns real positive). The Fed achieves a "soft landing," DXY weakens, EM flows intensify. BIST rises strongly (valuation expansion + growth revision). TL appreciates in real terms (REER below 100).
Data That Would Invalidate: September/October CPI monthly below 1.0%, core inflation (B, D, F, G) declining rapidly, Fed "pivot" signal (unemployment above 4.2% + inflation below 3%).

Pessimistic Scenario (Probability ~25%):
Inflation shows stickiness (stuck in the 29.73-35 annual band). Food/energy shock (Brent >120 $) or TL depreciation (USD/TRY >55) -> PPI -> CPI pass-through. The CBRT is forced to hike rates (37-42%). Domestic demand contracts deeply (GDP ~1-1.5%). If the budget deficit exceeds 7% of GDP -> heavy Treasury issuance -> TL yields rise -> MTM losses on bank balance sheets. Fed "higher for longer" -> DXY strengthens, EM flows reverse. BIST correction (valuation compression + downward growth revision).
Data That Would Invalidate: PPI monthly above 3%, CPI monthly above 2.5%, current account balance below -2 billion $ monthly, reserve growth halting/declining, VIX >25.

10. Conclusion and Evaluation

The Turkish economy is in the "medium-term difficulty" phase of disinflation under tight monetary policy; the downward trend in inflation has been confirmed, but there is still a distance to go to achieve price stability. High real interest rates suppressed domestic demand, enabling a rapid improvement in the current account balance; this increased reserves and lowered the currency risk premium. However, this success came at the cost of sacrificing growth (GDP 2.3%), industrial contraction, and a deepening budget deficit. In the global environment, the Fed's "higher for longer" stance and term premium pressure on US long-term yields keep foreign capital flows (carry trade) fragile.

From an investor/analyst perspective; the logic for positioning is built on "peak rates, rate cut expectations." At this stage, stocks with low interest rate sensitivity, high foreign currency income, controlled indebtedness, and quality real assets (technology, defense, export-oriented industry, selective banks) are relatively safer; stocks with high interest rate sensitivity, domestic demand dependence, high indebtedness, and margin pressure (retail, construction, durable consumption) are relatively riskier. In portfolio construction, assets providing liquidity buffers, foreign currency positions (as a hedge against currency risk), and real interest protection (CPI-indexed rental income, foreign currency-based income) take priority.

Note: This article has been prepared for educational and analytical purposes; it does not contain investment advice, buy-sell orders, or target prices. Macroeconomic scenarios are probabilistic, not definitive results; make your decisions according to your own risk tolerance and your advisor.

Data Base (key indicators used in analysis)