Macro and Politics

* June Employment figures will be released @ 10:00 local time. The seasonally adjusted unemployment rate remained unchanged at 8.2% in May, while the broad underutilization rate — which we closely monitor as a more comprehensive gauge of labor market conditions, and which includes time-related underemployment, potential labor force and unemployment — increased from 30.1% to 31.0% over the same period. A breakdown of the subcomponents shows that the combined rate of time-related underemployment and unemployment rose from 19.3% to 20.2%, whereas the combined rate of unemployment and potential labor force remained stable at 20.5%. The fact that broad unemployment continues to remain above the 30% threshold suggests that fragilities in the labor market remain elevated. While the relatively subdued headline unemployment rate indicates that the narrow definition of unemployment fails to fully capture the underlying weakness in labor market conditions, the persistently high level of potential labor force points to significant remaining slack in the labor market. Taken together, we believe labor market conditions continue to present a weaker picture than what the headline unemployment rate of 8.2% alone would imply.

* TURKSTAT will release June Economic Confidence Index @ 10:00 local time. The Economic Confidence Index rose to 98.9 in June from 97.2 in the previous month, while the three-month moving average edged up to 97.5 from 97.2. Although readings above the 100 threshold signal optimism regarding the overall economic outlook, the index remained below this level, pointing to a still-cautious assessment of economic activity. Looking at the June sub-indices, consumer confidence increased by 2.5% to 87.9, while the real sector confidence index rose by 1.0% to 102.0. Confidence also improved across the services, retail trade and construction sectors, with the respective indices rising to 110.5, 112.8 and 83.0. While the broad-based improvement across all sub-indices suggests a modest recovery in sentiment during June, the Economic Confidence Index remains below the neutral 100 threshold and tight financial conditions continue to weigh on economic activity. As such, we do not anticipate a strong or broad-based acceleration in growth over the near term. That said, the recovery in consumer and real sector confidence, together with the recent improvement in leading indicators, points to somewhat more resilient economic growth in the second quarter relative to the first quarter.

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the July 17 – 24 period at 14:30 local time today. Based on our calculations using the CBT's analytical balance sheet, we estimate that the CBT's net FX reserves increased by USD293mn to USD51.4bn in the week of July 17–24, while gross FX reserves rose by USD2.3bn to USD162.8bn. We expect today’s official reserve data to confirm a reserve build broadly consistent with our analytical balance sheet-based estimates. To briefly recall the previous week’s data: Foreign investors recorded a modest USD37.5mn net purchase in equities, while the bond market excluding repo transactions attracted a USD196.6mn net foreign inflow during the July 10 – 17 period. During the same period, residents' FX deposits excluding gold and adjusted for the EUR/USD parity effect increased by USD4.8bn, while their total FX deposits including gold, adjusted for gold price effects, increased by USD5.2bn. Over the same period, the CBT's gross FX reserves declined by USD2.8bn to USD160.5bn, while net FX reserves fell by USD5.1bn to USD51.1bn. The swap stock decreased by USD263mn to USD13.5bn, while net reserves excluding swaps declined by USD4.8bn, reaching USD37.6bn.