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Cagdas Dogan

BGC Partners: TURKEY - Consumer confidence mildly improves in March but remains at very weak levels…

Consumer confidence index (unadjusted) was 59.5 in March, compared to 57.9 in February and a high of 73.1 in July. August’s crash in TL and persistently rising lending rates had taken their toll on consumer confidence levels while TL’s partial re-appreciation, some pull-back in loan rates, and tax breaks seem to have led to a stabilization recently but no material improvement.

Cagdas Dogan

BGC Partners: PICTURING TURKEY - Some recovery in January but not out of the woods yet

• In this edition, we observe that Turkey’s y/y GDP growth momentum has recovered towards -1% y/y as of January 2019, driven by continued significant support from net exports as well as increased state expenditures as seen in the budget figures. Otherwise, despite some improvement from 4Q18 lows, both consumption and investments remained in deep contraction territory, which seem to have dropped by some 4% and 9% y/y as of January, respectively. Indicators that we have as of today suggest a mild recovery in consumption but not much in investments, while the contribution of net exports is also s...

Cagdas Dogan

BGC Partners: TURKISH BANKING SECTOR: A look at state banks’ exponential market share gains

BGC Partners: TURKISH BANKING SECTOR: A look at state banks’ exponential market share gains: In summary, also considering the fairly limited improvement in the net NPL evolution in the sector so far year-to-date, the combination of market share losses and lower-than-expected margins present some downside risk to particularly private bank earnings estimates, in our view.

Cagdas Dogan

BGC Partners: Central Government Budget deteriorated in February, as indicated by the Treasury cash balances…

Finance Ministry released February Central Government budget figures and the data showed a deterioration in budget balances, as indicated by Treasury cash balances, in the absence of advance dividend income from the CBT which had boosted revenues in January.

Cagdas Dogan

BGC Partners: TURKEY - Deterioration in the labour market accelerated in December...

TURKSTAT released the unemployment data in Turkey for December (average of November, December, and January). According to the data, unemployment rate in Turkey was 13.5% in December 2018, compared to 12.3% in November 2018 and 10.4% in December 2017.

Cagdas Dogan

BGC Partners: TURKEY - CBT Expectation Survey: Slight further decline in inflation expectations...

OUR TAKE: We observe slight further declines in inflation expectations over the 24-month horizon with the 2019-end CPI expectation dropping to 15.6%. Regarding expectations on monetary policy, market participants seem to expect 150bps cut from the CBT over the next three month horizon, which is probably for the June meeting. Whereas, total rate cut expectation for 2019 increased further to 550-600bps. (CBT, BGC Partners)

Cagdas Dogan

BGC Partners: Food for Thought: Rates conundrum…

- Market rates are well below the CBT policy rate… CBT maintained its policy rate at 24% in last week’s MPC meeting as expected; however, key market rates have already dropped sharply over the past three months, trading well below their historic ranges in comparison to the CBT policy rate. 2Y benchmark bonds trade at 18.5%, about 550bps below the CBT rate. Similarly, deposit rates plunged by 300bps over the past three months, standing at around 19.6% or 440bps below the CBT rate. Partial exception here are the swap rates which currently hover at around 23.5% and O/N money market rates that tra...

Cagdas Dogan

BGC Partners: Turkey produced a C/A deficit of US$0.8bn in January 2019, broadly in line with expectations…

Current account balance in January produced a deficit of US$0.8bn, which was broadly in line with expectations. This is a pretty small deficit for January, considering the seasonal rise in energy consumption and decline in tourism income. With the January data, we see that Turkey’s 12-month rolling C/A deficit improved from US$27.8bn in December to US$21.6bn in January, or to below 3% of GDP.

Cagdas Dogan

BGC Partners: GDP growth in 4Q18 came in at -3.0% y/y, broadly in line with expectations…

Turkey’s GDP contracted by 3.0% y/y in 4Q18, broadly in line with the -2.7% consensus forecast. It was widely expected for the GDP to have contracted in 4Q18 and activity is likely to have remained in contraction territory in 1Q19. As such, GDP growth materialized at 2.6% y/y in 2018. The seasonally and calendar adjusted GDP data pointed to a 2.4% q/q decrease in 4Q18 being the second consecutive quarterly decline in output, following the 1.6% q/q drop in 3Q18.

Cagdas Dogan

BGC Partners: Food for Thought: Why no dividends from banks?

For the first time since the 2002-03 period in the aftermath of the Turkish banking system crisis, it looks like Turkish banks will not be able to distribute any cash dividends in 2019. We should note that even during the 2008-09 global crisis episode, many of the Tier-I banks were able to distribute close to 20% of earnings. It had been reported by Bloomberg and later confirmed by bank managements that the BRSA had sent a document to banks back in November 2018 stating that capitals should be maintained to weather the negative impact of financial market volatility and that they could allow di...

Cagdas Dogan

BGC Partners: MPC MEETING OUTCOME: CBT maintained its policy one-week repo rate at 24.00%, in line with the consensus expectation...

MPC MEETING OUTCOME: CBT maintained its policy one-week repo rate at 24.00%, in line with the consensus expectation... The CBT held its MPC meeting today and decided on not touching its policy rate which stood at 24.00%, which was in line with expectations.

Cagdas Dogan

BGC Partners: Turkey February inflation reading was slightly better than expectations...

February inflation reading was slightly better than expectations... Monthly consumer price inflation came in at +0.2% in February, slightly better than the +0.4% market consensus. Annual CPI inflation, which was 20.4% in January decreased to 19.7% in February while annual core CPI decreased to 18.1%. February inflation has come slightly better than expectations on minor positive surprises in most items, suggesting lower inflationary pressures, supported by a relatively stable TL. The latter also continued to limit the PPI inflation to +0.1% m/m, as annual PPI dropped further to 29.6%.

Cagdas Dogan

BGC Partners: TURKISH BANKS: Sector’s aggregate net income -29% in Jan-19 – Neutral

• BRSA announced the banking sector’s aggregate net income for 1M19 as TL3.2bn, down 29% y/y, for an ROE of 9%. This indicates a 2% m/m increase while January earnings compare some 23% below the monthly 4Q18 average.

Cagdas Dogan

BGC Partners: Food for Thought: The search for carry…

While the Central Bank of Turkey maintains its policy rate at 24%, the average TL deposit cost of Turkish banks have dropped below 20% as of mid-February 2019, from a high of 25% in the aftermath of the CBT’s sizeable rate hike in September 2018. We believe that the ongoing deleveraging process in the economy and the drop in the yield of the alternative instrument of short-term bond yields to 19.5%, led to this faster-than-expected decline in TL deposit costs.

Cagdas Dogan

BGC Partners: Foreign trade deficit continued to improve in January, driven primarily by the decline in imports, as expected...

Monthly foreign trade deficit was US$2.5bn in January, in-line with expectations, suggesting a 72% y/y improvement in the trade balance. We should note that the Ministry of Customs and Trade announce preliminary foreign trade figures at the beginning of the month, so the official announcement is not fresh news.

Cagdas Dogan

BGC Partners: Implications of LOCAL ELECTIONS (Politics, Macro, Equities & Stock Picks)

IMPLICATIONS OF LOCAL ELECTIONS Local elections are scheduled to take place on 31 March 2019. We briefly discuss the political, macro, and market implications of local elections below.

Cagdas Dogan

BGC Partners: CUR weakens while business confidence marginally improves in February

Capacity utilization rate (CUR) was 74.0% in February 2019, compared with 74.4% in January 2019 and 77.8% in February 2018. The seasonally adjusted CUR in February slightly decreased m/m from 74.3% to 74.1%.

Cagdas Dogan

BGC Partners - PICTURING TURKEY REPORT - GDP may have contracted by up to 5% y/y in 4Q18

PICTURING TURKEY REPORT - GDP may have contracted by up to 5% y/y in 4Q18 • We observe that Turkey’s y/y GDP growth momentum has remained at around -5% y/y as of December, driven by a further decline in both consumption and investments, which seem to have dropped by some 7% and 14% y/y as of December, respectively. With the alleviating impact of net exports, we forecast that Turkey’s GDP may have contracted by up to 5% y/y in 4Q18. This would suggest a GDP growth of around 2% for full-year 2018, lower than the c.3% expectations. Indicators that we have as of today suggest some recovery on the ...

Cagdas Dogan

BGC Partners: Decline in retail sales volume continued in Decembe

Retail sales volume index decreased by 9.3% y/y in December in unadjusted terms, while the calendar adjusted figures also confirmed the downtrend as calendar-adjusted retail sales contracted by 9.2% y/y in December, compared to the 6.0% drop in November and 7.3% drop in October. As such, retail sales contracted by 7.4% y/y in 4Q18, compared to flat performance in 3Q18.

Cagdas Dogan

BGC Partners: Deterioration in the labour market continued in November...

When we look at the details of the employment figures, we should note that the number of employed has dropped on a y/y basis for the first time since June 2009. We see that there is still job creation in industry and services sectors, while number of people working in agriculture and construction dropped y/y. (T

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