Macroeconomic Evaluation

1. Global Macroeconomic Outlook

In the global macroeconomic picture, the structural divergence between the US and the Eurozone is deepening in the final quarter of 2026, and this divergence affects emerging markets (EM) in different ways through liquidity and risk appetite. The US economy maintained its resilience by recording annual growth of 2.2% in the second quarter of 2026 (quarterly 2.2%); however, the engine of this growth rests on the strong course of private consumption expenditures (quarterly 3.2%) and retail sales supported by a 6.3% annual increase in September. Although the still-low unemployment rate (4.2%) and the broad unemployment (U-6) at 7.6% suggest that the Fed's "full employment" target has not deteriorated, the decline in August JOLTS job openings to 7,079 million and September NFP (29 thousand) coming in well below expectations (90 thousand) indicate that the demand side is slowly turning into the supply side. Mixed signals dominate the inflation fight: While headline CPI rose to 3.7% annually (September) and core CPI to 2.6% (September), the Fed's preferred PCE deflator stands at 3.4% annually (August) and core PCE at 3.0%. The critical point is that September PPI came in at 1.3% monthly (6.3% annually), much stronger than expected (0.5% monthly); this signals that producer cost pressure is still alive and that the "last mile" challenge of inflation continues. The Fed kept the policy rate unchanged at 4.0% at its October 22 meeting; however, the September dot plot projections (1 year 4.1%, 2 years 3.9%) showed a markedly "hawkish" shift compared to the previous meeting (3.6% and 3.4%, respectively). This strengthens the possibility that, although markets have priced in the "soft landing" scenario, the Fed may postpone the start of its rate cut cycle to 2027 or follow a slower pace. The US yield curve is shaped by this expectation: With 3-month at 4.02%, 5-year at 4.76%, and 30-year at 5.29%, the curve has moved away from "bear steepening" dynamics and begun pricing in the risk that long-term real rates may remain structurally higher (term premium). The relatively calm course of the DXY index at 101.6 levels shows that the Fed's relative hawkishness is offset by the Dollar's reserve currency status and US growth superiority.

The Eurozone, on the other hand, presents a completely opposite picture. Although the ECB policy rate remains unchanged at 2.65%, and regional growth in the second quarter exceeded potential at 1.3% annually (quarterly 0.6%), most of this growth comes from the tourism and services-driven recovery of peripheral countries such as Spain and France, while the locomotive Germany is under the weight of industrial stagnation (Industrial Production in August at -1.1% annually, -0.5% monthly). Inflation remains above the target (2%) at 3.8% annually in headline CPI (September) and 2.5% in core (September); however, the surge in PPI to 8.2% annually in August (previous 5.8%) brings with it the risk of a second-round effect on consumer prices from the revival in energy and intermediate input costs (Brent at 113 USD levels). Retail sales growth of 0.8% annually and the consumer confidence index remaining in pessimistic territory at -16.5 points (September) confirm the weakness of private demand. Although M3 money supply growth at 3.5% annually and credit growth to companies at 4.2% remain relatively lively, the transmission of this liquidity to the real economy remains weak. The narrowing of the current account balance to a surplus of 7.7 billion Euros in August (previous 35.9 billion) and the trade balance falling to a deficit of -16.1 billion Euros show that energy import costs and weak global demand (export performance) are pressuring the external balance. In this framework, the global liquidity environment creates a risk appetite selectivity themed around "US exceptionalism": The expectation that long-term real rates in the US will remain high and the rise in VIX by 19.7% to 20 levels make portfolio flows to emerging markets selective and fragile.

2. Turkey's Macroeconomic Outlook

The Turkish economy, with September 2026 data, shows that it is in the "mid-advanced stage" of the disinflation process, but is at a critical crossroads regarding the "last mile" (approach to single-digit target), the most difficult part of this process, and the timing of policy rate normalization (cuts). According to TUIK data, September CPI fell to 29.73% annually (previous 31.51%) and 1.84% monthly (below the estimate of 2.3%); PPI also maintained its improving trend at 27.38% annually (previous 27.95%) and 2.07% monthly (previous 2.57%). These data indicate that the tight monetary policy established by the CBRT with a 37% policy rate (Real rate: Policy rate - 12-month forward inflation ~ around +7-8 points positive real rate) is working through the demand channel (suppressing domestic demand) and the expectations channel (declining inflation expectations), and also suppresses imported inflation based on the slight appreciation of the Real Effective Exchange Rate (REER) index to 105.45 in September (previous 105.0). Growth dynamics, on the other hand, reflect the cost of this tightness: While 2026/Q2 GDP grew 2.3% annually (below the estimate of 2.9%) and 1.1% quarterly; industrial production in August at -1.86% annually and -1.0% monthly reveals that the production side is under pressure from interest rate sensitivity and real credit costs (deposit rate 43.04%, consumer loan rate 64.74%). The capacity utilization rate remaining relatively stable at 74.5% in October (previous 74.2%) suggests that, with the end of the inventory cycle and support from external demand (exports in September at 25.98 billion USD, previous 23.47 billion), investment delays have not yet led to a deep contraction. In the labor market, the August unemployment rate at 7.7% and the economic participation rate at 52.5% show that the impact of the contraction process on employment is still controlled; however, retail sales have contracted significantly in real terms (10.1% nominal annually vs 29.73% inflation), and with the consumer confidence index at 91.9 points in September (previous 90.8) remaining below the optimistic/pessimistic threshold (100), household perception is still fragile. In summary; while Turkey records success in "stability indicators" such as inflation falling below 29.73%, the current account balance turning to surplus (in August +4.05 billion USD) and reserves increasing (64.57 billion USD); it is experiencing the most difficult point of the "growth-inflation trade-off" with growth pulled below potential, industry contracting, and real rates remaining high.

3. Domestic Demand, Credit and Liquidity

The transmission channels of monetary policy on domestic demand are becoming concrete with the data provided. The "interest rate corridor" created by the CBRT through its policy rate (37%) and liquidity window rates determines the cost structure of the banking system. With October data, the TL deposit rate at 43.04% (previous 43.80%) and with August data the consumer loan rate at 64.74% (previous 63.67%) show that the real deposit rate (based on annual inflation of 29.73%, ~43.04-11) and the real loan rate (~27-28) are significantly positive. This high real cost causes M3 money supply growth (28.65% annually in October, previous 29.78%) to lag behind nominal inflation (29.73%), hence the real money supply (real M3) to contract continuously. The contraction in real money supply, consistent with Friedman's thesis that "inflation is always and everywhere a monetary phenomenon," erodes the purchasing power in the hands of society and suppresses aggregate demand. The 36.32% annual growth of bank loans (August, previous 36.60%) may still appear high in nominal terms; however, when deflated by inflation, real credit growth has fallen to single digits (approximately 2.3-6%). This shows that companies' access to working capital and investment financing has become costly and restricted, and households are postponing the use of consumer loans (especially housing/vehicle). Retail sales growth of 1.4% monthly and 10.1% annually in August, although showing growth in nominal terms, indicates a contraction of approximately 15-16% in real terms (deflated by CPI). The contraction of industrial production by -1.0% monthly and -1.86% annually, and the capacity utilization rate stuck at 74.5%, indicate that the combination of domestic demand pressure and external demand uncertainty (EU industry -1.1%) is delaying the investment decision-making process. The credit channel and interest rate channel are clearly operating in the "restrictive" zone with these data; however, the sustainability of this restrictiveness is being tested against the opposite of the expansionary course of fiscal policy (detailed below).

4. Global Risk Appetite and Interest Rate Expectations

Küresel risk iştahı, Ekim ortasındaki piyasa verilerinde belirgin bir "risk off" (riskten kaçınma) kıpırdaması sergilemektedir. VIX endeksinin (CBOE Volatility Index) 16.68'den 19.97'ye (19.7% artış) tek oturumda fırlaması, piyasa katılımcılarının gelecek 30 günlük oynaklık beklentilerinin aniden arttığını, bu da Fed'in faiz yol haritası belirsizliği (dot plot kayması), ABD 30 yıllık tahvil getirisinin 5.29% seviyelerindeki yapısal direnci ve Orta Doğu jeopolitik gerginliklerinin (Brent 4.1% artışla 113.3 USD) birleşiminden kaynaklanmaktadır. ABD 5 yıllık tahvil getirisinin 4.97%'den 4.76%'ya (4.2% düşüş), 3 aylığın 4.06%'dan 4.02%'ye gerilemesi, Fed'in erken indirim beklentilerinin fiyatlanmaması (forward guidance) ve uzun vadeli tahvillerde dönem primi (term premium) talebinin artması dinamiklerini yansıtır. DXY'nin 101.61% seviyesinde nispeten düz seyretmesi, Fed'in göreli sertliğinin Dolar'ı desteklemesi ile uzun vadeli getirilerdeki gerilemenin Dolar üzerindeki baskıyı dengelemesi sonucudur. Bu ortam, gelişmektek piyasalar (EM) için iki yönlü risk yaratmaktadır: Bir yandan yüksek ABD reel faizleri (US real yields) ve artan VIX, EM portföy akımlını (portfolio flows) baskılayan "push factor" (itan faktör) olarak işlemektedir; diğer yandan Türkiye'deki yüksek reel faiz diferansiyeli (Policy rate 37% vs Fed 4%, Core inflation trending down), "pull factor" (çeken faktör) olarak yabancı yatırımcının TL denominated varlıklara (özellikle kısa vadeli devlet tahvilleri/bonolar) ilgisini canlı tutmaktadır. BIST 100'in 3.08%, BIST 30'un 3.13% gerilemesi, yerli yatırımcının likidite ihtiyacı ve yabancı yatırımcının risk aversiyonu (risk aversion) kaynaklı satış baskısının birleşimidir. Fed'in Kasım/Kasım sonrası toplantıları ve ABD iş verileri (NFP, CPI) bu kırılgan dengeyi bozacak ana katalizörlerdir.

5. Budget and External Balance

The most critical source of Türkiye's macroeconomic fragility is the "policy mix" contradiction created by fiscal policy running loose while monetary policy is tight. The September central government budget balance 532.2 billion TL deficit (532.2) ( previous month +12.9 billion TL surplus), the realization of such a massive monthly deficit in the ninth month of the year shows that year-end targets (projected at around 5-6% of GDP in the official program) are under serious risk, and may even point to a budget deficit of around 7-8% of GDP (on an annual basis). Since the financing of this deficit is carried out through the CBRT's sterilization operations (OMO, repo) and rising market rates, the Central Bank's fight against inflation (tight monetary policy) is partially neutralized by the Treasury's borrowing needs (loose fiscal policy) (fiscal dominance risk). In the external balance, however, the picture is more positive: The August current account balance of 4.05 billion USD surplus (4.05) ( previous ~0), with the surplus continuing in the January-August cumulative data, indicates that although imports (September 31.21 billion USD) exceed exports (September 25.98 billion USD) (monthly trade deficit -5.23 billion USD), the services balance (especially tourism revenues at 15.9 billion USD in Q2) and primary income transfers not only close this gap but push it into surplus. The rise in the Central Bank's gross foreign exchange reserves to 64.57 billion USD (October 9) also suggests that the net reserve position has improved (with swap costs reduced). However, this external balance improvement is fragile against the course of the energy bill (Brent 113 USD) and gold imports (which may remain hidden in sub-items of the current account), and the impact of the global growth slowdown (EU, China) on export performance. The intensification of TL-denominated domestic borrowing to finance the budget deficit carries the risk of suppressing private sector credit (crowding out effect) by pushing real rates up.

6. Energy, Commodities, Foreign Exchange and Bond Markets

Commodity and currency markets are the most critical external variables shaping the future of inflation and the current account. Brent crude 113.30 USD/barrel (113.30) ( The rise to the WTI 99.48 USD) level took place with the combination of OPEC+ supply discipline, the geopolitical risk premium (Middle East) and global demand expectations (US growth, China stimulus packages). Since the largest item in Türkiye's import bill is energy (and gold), Brent's course above 100 USD increases the risk of the current account turning back into deficit in post-2026 periods (especially the winter months), and keeps alive the delayed pass-through risk to the CPI via the PPI (annually 8.2% EU, 6.3% US). The gold price per ounce 4,042.80 USD decline from its level (previous 4.150 USD), can be explained by the rise in real US Treasury yields and the relatively strong Dollar; however, the drop of Gram Gold to 6,449.81 TL level (previous 6.615.81 TL), with USD/TRY at 49.62 relatively fixed course (a 0.08% monthly change) suggests the TL-based gold price's hedge function has weakened, even that the domestic investor may have turned to gold selling due to liquidity needs. The EUR/TRY's 55.79 level (monthly increase of 0.18%), shows that against Eurozone economic weakness and ECB rate cut expectations (market pricing), the TL's currency protection (REER 105.45) is still strong, and that without FX sales by the Central Bank (considering reserve increases), the currency is in a real appreciation trend. This currency stability is the most important anchor suppressing imported inflation; however, since REER levels around 105 (2003=100 base) may erode exporter competitiveness over time, a balancing depreciation in the currency when rate cuts begin during the disinflation process will be necessary for macroeconomic balance.

7. Transmission Mechanisms: From Macro to Market

The transmission of macroeconomic variables to financial markets and the real economy (transmission mechanism) operates through the following three main chains with the data analyzed above:

1. Interest Rate Channel: Policy Rate (37%) → Bank Deposit/Loan Rates (deposits 43%, loans 65%) → Real Credit Cost (positive, high) → Domestic Demand (consumption/investment) → Retail Sales (real contraction) / Industrial Production (contraction) → Company Sales and Margins (cost pressure + sales contraction) → Valuation (Discount Rate ↑ in DCF models, Cash Flows ↓ → valuation collapses). This chain is currently in full operation; the BIST 30's 3.13% decline is the reflection of this mechanism in market pricing.

2. Exchange Rate Channel: Policy Rate / Real Rate Differential + Merkez Bankası policy → USD/TRY (stable/appreciation: 49.62) / REER (105.45) → Import Input Costs (excluding energy) → PPI (annual 27.38%, declining) → CPI (annual 29.73%, declining) → Inflation Expectations. This channel plays the "anchor" role in disinflation. However, the REER level of 105 signals "overvalued" for the structural sustainability of the current account (with energy prices high); with a rate cut this channel will reverse.

3. Global Liquidity and Risk Premium Channel (Global Liquidity & Risk Premium): Fed Rate (4.0%) / Dot Plot (Hawkish) + VIX (20) + US 10Y Real Yield → Foreign Capital Flows (Portfolio) → TL Demand / TL Rates (Risk Premium) → BIST Valuations / CDS Premium. The Fed's "higher for longer rates" message and the rise in the VIX create selling pressure on EM assets (including BIST) through this channel; however, Türkiye's high real yield (the carry trade attraction) prevents this flow from being completely cut off. The growth of the budget deficit, in turn, pulls this risk premium upward through the CDS premium and long-term TL bond yields.

8. Reflections on BIST 30: Sector Channels

High interest rates, a strong currency (real appreciation) and slowing domestic demand affect BIST 30 sectors asymmetrically:

• Banking: The margin between the deposit cost (43%) and loan yield (Net Interest Margin - NIM) carries a compression risk; however, the high real yield of TL assets (CPI linker bonds, short-term cash) preserves bank balance sheets in real terms. The real slowdown of credit growth (credit growth real ~37%-6) keeps the asset quality (NPL) risk low for now; however, toward 2027, NIM expansion and accelerating credit volume with rate cuts could be a "re-rating" catalyst. The current pricing has the "rate peak" scenario priced in.

• Industry / Exporter Holdings (e.g. Tofaş, Ford Otosan, Arçelik, Türk Traktör): The EUR/TRY level of 55.79 and REER 105.45 carry the risk of pressuring export margins in TL terms. However, demand resilience in the US market (US Industrial Prod +2.2% YoY) and the EU industrial production's bottoming attempts support sales volumes. Input costs (PPI 27.38%, Brent 113 USD) create more pronounced pressure than interest costs (investment loans). Valuations will be volatile depending on currency expectations (20%-25 annual depreciation priced in) and the timing of rate cuts.

• Retail / Consumer (e.g. BIM, Mavi, Migros): The contraction of real retail sales (annually 10.1% nominal vs 29.7% inflation), consumer confidence at 91.9 (pessimistic) and the decline in real wages (no data, qualitative: absent above-inflation raises) are squeezing the margins of volume-driven growth models. Companies like BİM with a low fixed-cost ratio and fast inventory cycle are relatively advantaged in this environment; however, the sector as a whole is under "earnings revision" risk.

• Investment Holdings / Cement / Construction: The high real rate raises project financing costs (WACC), eroding NPVs (Net Present Value). Capacity utilization at 74.5% shows the investment gap continues. In cement, domestic market demand (no housing starts data, qualitatively: high credit costs) is weak, and exports (EUR/TRY) are under margin pressure.

9. Scenarios and Monitoring Framework

Three base scenarios for the coming 3-6 months are constructed in a data-dependent framework:

Base Scenario (Probability ~55%-60): "Tight Money, Slow Disinflation, Rate Cut in Early 2027"

• Assumptions: TCMB keeps the 37% rate until Q1/2027. CPI falls to 29.73%-26 in December, to the 20%-22 band in March 2027. Budget deficit stays around 6%-7 of GDP (Treasury takes measures). Brent trades in the 90-100 USD band. The Fed starts cutting in Q1/2027.

• Data to Monitor: October/November CPI monthly 1.5%-2.0 band; December Central Bank Communication; January Treasury budget realizations; Fed December/November meeting minutes.

• Invalidation: If November CPI comes in above 2.5% monthly (if services inflation becomes sticky) OR if the Treasury closes the year-end cash gap above 700-800 mld TL (money printing/sterilization risk) → the "Pessimistic" scenario kicks in.

Optimistic Scenario (Probability ~20%-25): "Rapid Disinflation, Early Rate Cut, Foreign Inflow Surge"

• Assumptions: CPI stays in the 1.0%-1.5 monthly band in November/December. Services inflation breaks. Current account surplus continues. The Fed gives a "pivot" signal (unemployment above 4%, core PCE below 2.5%). Brent falls below 80 USD.

• Trigger: November CPI below 1.5% + Merkez Bankası "rate cut discussions have started" signal (Communication).

• Market Impact: BIST 30 upside potential of 15%-20 (especially banks, holdings), controlled depreciation of USD/TRY into the 49.622-53 band, 2-year bond yields below 30%.

Pessimistic Scenario (Probability ~20%): "Fiscal Dominance, Inflation Stickiness, Currency Shock"

• Assumptions: Budget deficit grows uncontrollably (pre-election spending). CPI moves in the 1.84%-2.5 monthly band (cannot fall below 30% annually). Brent 120+ USD. Fed keeps "higher for longer" (higher for a longer time), DXY 105+.

• Trigger: December budget deficit above 600 mld TL + January CPI monthly 2.5%+ + Central Bank rate hike obligation (or holding the rate but losing credibility).

• Market Impact: USD/TRY 55-60 rapid depreciation, BIST 37 15%-20 correction (TL-based), CDS 400-500 bp, real rate turns negative.

Monitoring Framework (Dashboard):
1. Weekly: Merkez Bankası Weekly Bulletin (Reserves, OMO, Credit/Deposit rates), Brent/WTI, DXY, VIX.
2. Monthly (Critical): CPI/PPI (3rd-5th of the month), Current Account / Exports-Imports (15th-20th), Budget Balance (15th-20th), M3/Credit Stocks, Industrial Production / Capacity Utilization, Consumer/Business Confidence.
3. Quarterly: GDP (TÜİK), Current Account Detail (TCMB), Flows Financing the Current Account Balance (Portfolio/DIRECT INVESTMENT/CREDIT), Company Balance Sheets (Q3/2026 profit announcements start in early November).

10. Conclusion and Evaluation

In light of the data dated 23 October 2026; the Türkiye economy has made tangible progress on the disinflation path thanks to the Central Bank's determined tight monetary policy (CPI from 31.5% to 29.7%, PPI from 28.0% to 27.4%), has turned its current account into surplus and increased its reserves. These achievements were obtained at the cost of keeping real interest rates high, allowing real appreciation of the currency and suppressing domestic demand (GDP 2.3%, Industry -1.9%, Real Retail contraction). However, the sustainability of this balance depends on the consistency of fiscal policy with monetary policy (policy mix consistency), the course of global energy prices (Brent 113 USD risk) and how the "hawkish" shift in the Fed's rate path will affect emerging markets through risk appetite. The explosion of the budget deficit in the September data (532 mld TL) constitutes the largest domestic risk factor (fiscal dominance) for the coming period; financing this deficit without money printing (domestic borrowing / reserve use) is the critical condition that will keep real interest rates high and thus sustain disinflation. The sudden cooling in global risk appetite (VIX 20) and the structural resistance in long-term US yields (30Y 5.29%) indicate that foreign portfolio flows will remain selective and fragile. BIST 30 valuations have priced in the current rate-peak expectation and slow disinflation; however, "earnings momentum" is negative in the industrial and retail sectors and neutral/positive in banking (CPI linker portfolio effect). In the coming period, whether the stickiness of inflation in the services component (rent, restaurants, transport) breaks, how the Treasury's year-end cash need is met, and the direction of the Fed's December "dot plot" update will be the main catalysts determining the performance of Türkiye assets (TL, Bonds, BIST). The analysis has been prepared for analysis, education and information-sharing purposes; it does not constitute investment advice.

Data Base (key indicators used in analysis)