Global markets are focused on the ECB's interest rate decision, while the domestic market is concentrating on the Central Bank's interest rate decision.

In global markets, concerns that the U.S. Federal Reserve (Fed) may slow down the pace of its easing process and the ongoing tensions in the Middle East led to a mixed trend last week, with eyes now turned to the European Central Bank's (ECB) interest rate decision.

CAUTIOUS STANCE IN U.S. FINANCIAL CIRCLES

For some time, the growing confidence that inflationary pressures in the U.S. had weakened gave way to a cautious stance following the released inflation data. A mixed trend is observed amid concerns that the Fed may slow down the pace of its easing process after the inflation in the U.S. came in above expectations. There are also ongoing concerns about whether the prolonged period of high interest rates will result in a recession.

U.S. CPI CAME IN HIGHER THAN EXPECTATIONS

The Consumer Price Index (CPI) released in the country showed a monthly increase of 0.2% and an annual increase of 2.4% in September, exceeding expectations. Analysts noted that following the released inflation data, there could be changes in the Fed's pace of interest rate cuts, emphasizing the increasing importance of signals from upcoming macroeconomic data in the country. Meanwhile, the Producer Price Index (PPI) in the country remained unchanged on a monthly basis in September, coming in below expectations, while it increased by 1.8% on an annual basis, exceeding forecasts.

UNEMPLOYMENT BENEFIT APPLICATIONS ABOVE EXPECTATIONS

Additionally, the number of first-time unemployment benefit applicants in the U.S. rose to 258,000 in the week ending October 5, exceeding market expectations. Thus, the number of applicants for unemployment benefits recorded its highest level since August 2023. Analysts noted that the increase in unemployment benefit applications may have been partially influenced by Hurricane Idalia and labor strikes, and they mentioned that Hurricane Milton, which is affecting the state of Florida, could also impact employment data in the coming weeks. The consumer confidence index measured by the University of Michigan in the U.S. fell to 68.9 in October, coming in below market expectations.

EXPECTATION OF 50 BASIS POINTS IN INTEREST RATE

Furthermore, the minutes from the Federal Open Market Committee (FOMC) meeting held on September 17-18 indicated that "a significant majority" of bank officials supported a 50 basis point cut in the policy rate. The minutes also revealed that some officials noted that while economic growth remains strong and unemployment continues to be low, inflation is still somewhat high, and they favored a 25 basis point cut in the policy rate during the meeting. The Fed's minutes stated, "Almost all officials indicated that the upside risks to the inflation outlook have diminished, while the downside risks to employment have increased." While statements from Fed officials are being monitored, New York Fed President John Williams expressed that he expects further interest rate cuts as inflation pressures continue to ease. Atlanta Fed President Raphael Bostic stated that depending on how the economic outlook develops, the bank is open to either cutting interest rates by a quarter point or keeping them steady at next month's meeting. Dallas Fed President Lorie Logan supported the 50 basis point rate cut made by the bank last month but expressed that there are still upside risks to inflation and that, considering the uncertainties regarding the economic outlook, it may be appropriate to return to a normal policy stance more gradually. Minneapolis Fed President Neel Kashkari also reported that the risk balance is shifting from high inflation to rising unemployment.

GLOBAL MARKETS SHOW MIXED TREND WITH RISK PERCEPTION

In global markets, a mixed trend was observed last week due to concerns that the Fed may slow down the pace of its easing process and the ongoing tensions in the Middle East. Despite the developments, while the probabilities that the Fed may keep the policy rate steady next month are being priced in, expectations remain strong that there will be a total cut of 50 basis points in the two meetings scheduled until the end of the year, with 25 basis points each. Analysts stated that signals from companies' financial results could increase stock and sector-based volatility in the markets.

With these developments, the U.S. 10-year Treasury yield ended the week up 11 basis points at 4.08%, while the dollar index rose by 0.4% to 102.9. The price of gold per ounce increased by 0.1% to $2,657.3 last week, and the price of Brent crude oil rose by 0.9% to $78.6 per barrel.

NEW YORK STOCK EXCHANGE PERFORMED POSITIVELY

The New York Stock Exchange performed positively last week as expectations grew that the U.S. economy could achieve a "soft landing." On the corporate side, shares of Alphabet fell by 2.40% following news that the company was preparing to "force" its search engine Google, which the U.S. has accused of monopolization, to sell some of its applications and services. Boeing's shares also dropped by 2.57% after the company withdrew its 30% wage increase offer for factory workers who have been on strike since mid-September. Net profits of JPMorgan Chase and Wells Fargo declined in the third quarter compared to the same period last year. Despite the drop in profits, JPMorgan Chase's shares rose by 5.24% after the bank's profit and revenue exceeded expectations and it raised its annual interest income forecast. Wells Fargo's shares also increased by 7.08% as its profit exceeded expectations despite the recorded decline during the period. Shares of asset manager BlackRock rose by 4.33% after reporting that the assets under its management reached a record level for the third consecutive quarter. Tesla's shares fell by 12.91% as the company's long-awaited robotaxi "Cybercab" presentation was deemed weak due to a lack of technical details. With these developments, the Nasdaq index gained 1.12%, the Dow Jones index rose by 1.21%, and the S&P 500 index increased by 1.11%. Next week, the New York Fed manufacturing index on Tuesday, retail sales on Thursday, Philadelphia Fed Manufacturing Index, industrial production, weekly unemployment benefit applications, housing starts, and building permits on Friday will be closely monitored.

ALL EYES ON ECB'S INTEREST RATE DECISION IN EUROPE

Last week, European stock markets showed a buying trend, except for the UK, while recession concerns continued to persist across the region. The ECB is expected to continue its easing process at its monetary policy meeting next week, while the flow of inflation and economic activity data from across the region is being closely monitored. A further 25 basis point interest rate cut is anticipated at the bank's meeting next week.

GERMANY REVISED GROWTH FORECAST

The German government updated its growth forecast for this year from the previously announced 0.3% to a negative 0.2%.

The minutes of the ECB's monetary policy meeting in September revealed that while the members of the ECB Governing Council were pleased with the progress of the disinflation process, they maintained a cautious stance regarding further policy easing. The minutes, which included the assessments of the Council members, indicated that they advocated for a gradual policy easing in light of price pressures. The minutes also pointed out that core inflation and inflation in the services sector could be more stubborn and may not decrease within expectations, noting that the recent decline in headline inflation was largely influenced by the drop in volatile energy prices. On the other hand, ECB member Bostjan Vasle stated that inflation risks have decreased, saying, "Even if the ECB decides to lower interest rates next week, this does not automatically mean that another cut will be made in December."

ASIAN MARKETS TRADED MIXED

In Asia, a mixed trend was observed last week. Despite news that China would take steps to promote the healthy development of its capital markets, a selling trend dominated the Chinese stock market. In a statement from the People's Bank of China (PBoC), it was noted that a new swap instrument, expected to have a volume of 500 billion yuan (70.7 billion dollars) at the outset, aims to "promote the healthy development of capital markets."

With the new swap instrument, securities companies, investment funds, and insurance companies will be able to swap government bonds and treasury bills, corporate bonds, stocks, and exchange-traded funds as collateral for investment in the stock markets. The new mechanism will allow institutional investors to exchange their less liquid assets for more liquid ones, provided they invest in the stock markets. Meanwhile, Chinese officials announced an economic stimulus package today. Accordingly, a decision was made to allow special purpose bonds for housing purchases, and officials indicated that there is room for increasing borrowing and budget deficits. It was also noted that the government is working to expand the areas where local government special bond revenues can be used. Analysts stated that the effects of the announced stimulus package on the markets will be monitored. Meanwhile, Japan's new Prime Minister Shigeru Ishiba dissolved the House of Representatives ahead of the early elections scheduled for October 27. Prime Minister Ishiba, who took office last week with his new cabinet, is preparing to face his first political test in the early general elections.

DOMESTIC EYES TURNED TO THE CENTRAL BANK'S INTEREST RATE DECISION

Last week, a downward trend was prominent domestically, with the BIST 100 index of Borsa Istanbul finishing the week down 2.56% at 8,876.22 points. The dollar/TL closed the week at 34.2834, slightly above the previous close by 0.1%. Analysts noted that in terms of technical analysis, support levels for the BIST 100 index are at 8,870 and 8,710 points, while resistance levels are at 9,165 and 9,300. In Turkey's current account, a surplus of 4 billion 324 million dollars was recorded in August, with a surplus of 9 billion 14 million dollars excluding gold and energy. This data indicates the highest monthly current account surplus since August 2019, while the balance of payments has recorded a surplus for three consecutive months for the first time since 2021. According to the Central Bank of the Republic of Turkey (CBRT) Market Participants Survey, the inflation expectation for the Consumer Price Index (CPI) has risen to 44.11% for the end of the year, while it has decreased from 27.49% to 27.44% for 12 months later and from 18.38% to 18.08% for 24 months later. Next week, the budget balance will be monitored on Tuesday, the housing price index on Wednesday, and the interest rate decision to be announced by the CBRT's Monetary Policy Committee on Thursday, along with housing sales.

THE CENTRAL BANK WILL ANNOUNCE THE INTEREST RATE DECISION ON THURSDAY

The Monetary Policy Committee of the Central Bank of the Republic of Turkey (CBRT) will meet under the chairmanship of Central Bank Governor Fatih Karahan on Thursday, October 17. The interest rate decision will be announced on the same day at 14:00. In the previous month's MPC meeting, the policy rate was kept unchanged at 50%. The current month-end expectation for the CBRT's policy rate is 50%, while the expectation for three months later has dropped to 46.26%. The expectation for the policy rate 12 months later has also decreased from 31.66% to 31.64%.