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Summary of EM STRATEGY | TURKEY DAILY - 02 July 2018

Core Content

This document provides an analysis of the Turkish economy and financial markets from the perspective of BNP Paribas Emerging Markets Strategy team. It includes insights on inflationary pressures, foreign exchange market dynamics, and the government's debt issuance plan, as well as relevant data releases and market contacts.

Main Points

Inflationary Pressures

• Istanbul CPI Increase: The ITO's Istanbul CPI rose by 1.3% month-over-month (m/m) in June 2018, higher than the 0.1% increase a year ago.
• Food Prices: Food prices increased by 1.4% m/m in June, a significant contrast to the 0.3% decline in June 2017.
• Monthly Food Expenditure: The monthly food expenditure (limit of hunger) for a family increased by 1.7% m/m, marking a sharp deterioration from the 1.3% decline a year ago.
• Annual Inflation: The annual inflation rate is expected to rise to 13.9% y/y in June, up from 12.1% y/y in May.
• Base Effect: The increase in inflation is partly attributed to the base effect, with seasonally-adjusted inflation in June 2017 being 0.5% m/m, much lower than the long-term average of 0.7%.
• Future Inflation Outlook: Seasonally-adjusted CPI inflation in August-October 2017 averaged 0.9% m/m, suggesting that headline inflation may decline gradually after peaking at around 15% in July.

NDF Schedule Unchanged

• CBRT's Decision: The Central Bank of the Republic of Turkey (CBRT) decided not to change the non-deliverable forward (NDF) auction schedule for Q3.
• Outstanding Amount: The outstanding NDF auction amount is expected to peak at USD 8bn, providing no further support to the Turkish Lira (TRY).
• Forward Sale Limit: The CBRT set the upper limit for forward foreign exchange sale positions at USD 10bn until the end of 2018.

Increased Domestic Debt Issuance

• July-September Borrowing Plan: The Treasury increased the total domestic debt issuance plan for July and August to TRY 20.9bn, up from TRY 19.1bn previously.
• Supply Pressure: This increase is likely to create more supply pressure in the local bond market, especially around 9-10 July.
• Auction Details: The auctions will include 11m bill, 5y fixed coupon bond, 10y CPI linker on July 9th, and 2y, 10y fixed coupon bonds, and 7y FRN on July 10th.

Data Agenda

• June Manufacturing PMI: The report highlights that the manufacturing PMI is expected to continue its downtrend, signaling further economic slowdown.
• Preliminary Foreign Trade Data: The Ministry of Customs will release preliminary foreign trade data for June, which may provide additional insights into the country's trade dynamics.

Key Information

• Market Outlook: The depreciation of the TRY, along with rising food prices, is expected to put upward pressure on CPI in June.
• Fiscal Policy: The increase in domestic debt issuance reflects a decline in non-borrowing financing sources and a deteriorating budget outlook.
• Investment Risks: The document warns of the risks associated with investing in financial instruments, including market volatility, counterparty risk, and liquidity risk.
• Legal Disclaimer: The document is not investment research for the purposes of MiFID II, and it is a marketing communication. It does not constitute an offer to sell or purchase any financial instruments and should not be relied upon as an authoritative source.

Table of Turkish Markets at a Glance

Note: BASKET = 50% USDTRY + 50% EURTRY

Market Contacts

Legal and Regulatory Information

• The document is a marketing communication and not investment research.
• It does not constitute an offer to sell or purchase any financial instruments.
• It is intended for professional clients and eligible counterparties.
• BNPP may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
• The document may contain performance data based on back-testing, which is for illustrative purposes only.
• The information is subject to change and may not be relied upon as an authoritative source.