Macro and Politics

* TURKSTAT will release September industrial production (IP) figures today at 10:00 local time. The sequential (seasonally and calendar-adjusted monthly figure) industrial production (IP) index declined by 1% m/m in August, while calendar-adjusted annual IP contracted by 1.9% y/y. This marked the second consecutive monthly decline in industrial production, consistent with the weakness signaled by foreign trade data and other leading indicators.  For September, we expect industrial production to post a modest recovery of 0.5% m/m, while the annual contraction is likely to moderate from August. The increase in capacity utilization and higher electricity consumption in organized industrial zones in September provide some positive signals for industrial output. However, the manufacturing PMI and intermediate goods imports excluding energy and gold suggest that activity conditions remain weak across the sector. Accordingly, even with a modest monthly rebound in September, we expect industrial production to register a pronounced contraction in 3Q26. Nevertheless, a recovery in agricultural output and contributions from non-industrial sectors could support GDP growth of around 3.2% y/y in the third quarter. We recently revised our 2026 GDP growth forecast downward from 3.2% to 2.8%.

* The Treasury will hold an 8y fixed-coupon bond auction and a direct sale of 5y lease certificate today and finalize its domestic borrowing program for November. The Treasury tapped the domestic markets to the tune of TL73.4bn through yesterday’s 2y and 4y fixed-coupon bond auctions, including TL36.9bn in non-competitive sales. The 2y auction recorded a bid-to-cover ratio of 1.88x, with an average compound yield of 39.51%. Demand was relatively subdued at the 4y auction, where the bid-to-cover ratio stood at 1.72x and the average compound yield settled at 39.07%. According to the Treasury's domestic borrowing strategy for November 2026–January 2027, domestic borrowing of TL123.4bn is planned for November against redemptions of TL122.7bn. Having already raised TL73.4bn so far, the Treasury could raise approximately TL50bn through today’s auction and direct sale.

* Based on our calculations using the CBT’s analytical balance sheet, we estimate that gross reserves increased by USD3.2bn to USD161.3bn, while net reserves rose by USD3.5bn to USD41.4bn during the October 30–November 6 week. Our estimates suggest that higher gold prices contributed USD1.4bn to the weekly increase in net reserves. Meanwhile, we calculate that the swap stock declined by USD733.4mn to USD13bn, while net reserves excluding swaps increased by USD4.2bn to USD28.4bn. Adjusting for gold valuation effects, swap transactions and changes in public sector FX deposits, our calculations point to approximately USD2.9bn in net FX purchases by the CBT from the market during the week. We expect Thursday’s official data to confirm an increase in reserves broadly in line with our analytical balance sheet-based estimates.