Macro and Politics

* TURKSTAT will release October inflation figures today at 10:00 local time. We expect CPI inflation to come in at 2.4% m/m in October, bringing annual inflation down from 29.7% to 29.5%, in line with market median forecast. Our monitoring of wholesale market prices points to a renewed increase in unprocessed food prices following September’s decline, with particularly pronounced gains in fresh fruit and vegetable prices. We also estimate a seasonal increase of around 10.8% in clothing and footwear prices. Looking ahead, we anticipate a moderation in monthly inflation over the final two months of the year, supported by favorable seasonal dynamics and a continued cooling in domestic demand. We maintain our year-end CPI inflation forecast at 29.2%.

* The ICI Turkey Manufacturing PMI declined from 47.9 to 47.3 in October, its lowest level since June, remaining below the 50 threshold for the 31^st consecutive month. Output and new orders contracted at their fastest pace in four and three months, respectively, while new export orders continued to weaken. Sectoral PMI figures also pointed to broad-based weakness, with only two of the ten sectors surveyed remaining in expansionary territory. The persistent weakness in manufacturing suggests that economic activity is underperforming our earlier expectations. Declining industrial production, subdued growth in real card spending and deteriorating confidence indicators reinforce signs of cooling domestic demand. Despite continued growth in retail sales volumes, weakening production and labor market conditions point to downside risks for 4Q26. We expect GDP growth of 3.2% y/y in 3Q26, supported by favorable base effects and a recovery in agricultural output. However, anticipating weaker domestic demand-driven growth momentum in the final quarter, we revise our 2026 GDP growth forecast downward from 3.2% to 2.8%.

* Foreign investors were net sellers of USD100mn in equities and USD183.8mn in bonds (excluding repo transactions) during the October 16–23 week. Equity outflows extended into a fourth consecutive week, bringing cumulative net foreign sales over the period to USD627mn. Bond outflows continued for a second week, while foreigners’ share in the total bond stock remained unchanged at 6.5%. Besides, residents’ FX deposits (excluding gold and adjusted for the EUR/USD parity effect) increased by approximately USD1bn during the October 16–23 week, while their total FX deposits (including gold, adjusted for the price effect) increased by USD223mn. In terms of official reserves: The CBT’s gross reserves declined by USD6.9bn to USD162.2bn during the October 16–23 week, while net reserves fell by USD8.6bn to USD42.8bn. The swap stock edged down by USD30mn to USD12.1bn, while net reserves excluding swaps contracted by USD8.6bn to USD30.7bn.