Weekly Bulletin - 23 May 2025

This week, Trump administration’s tax and spending bill was approved by the US House of Representatives raising concerns over the high level of public debt in the country. The news flow on the bill led to a deterioration in investor confidence. The preliminary PMI data for the US economy gave positive signals while Euro Area PMI data pointed to a weak outlook. In Türkiye, CBRT's Inflation Report and confidence indicators were closely monitored. Next week, personal consumption expenditures (PCE) inflation data to be released in the US and first quarter GDP data in Turkey will be high on the agenda. In addition, CBRT will publish the Financial Stability Report on Friday next week.

This week, the news flow on Trump's tax cut and spending plan were closely monitored. The bill, which passed the House of Representatives with 215 votes to 214, will be put to a vote in the Senate in the coming weeks. The bill is expected to increase the public debt burden by USD 2.3 trillion over the next 10 years according to official estimates. In line with the increasing concerns about the US debt sustainability along with the related news flow, IMF Vice President Gopinath stated that the US budget deficit is at alarming levels and that further increases should be prevented. On Friday evening last week, Moody's has downgraded the US credit rating from Aaa to Aa1, citing the country's high level of federal debt burden. Thus, for the first time in the country's history, all three major credit rating agencies downgraded the US rating below the highest credit grade. In its Financial Stability Report published this week, the ECB pointed to the volatility in the markets caused by the US trade policies and stated that the safe haven status of the US dollar and US bonds has started to be re-evaluated in the markets. The low investor demand for the US Treasury's 20-year bond issuance this week also confirmed the deterioration in the risk perception towards US long-term bonds.

This week, despite the easing concerns over trade wars, investor risk appetite declined as negative expectations regarding the US fiscal outlook dominated the agenda. MSCI World Markets index fell by 1.1% as of Thursday's close, while MSCI EM index declined by 0.6%. Shanghai Composite index, on the other hand, rose by 0.4% on a weekly basis due to the People’s Bank of China’s decision to cut policy rates for the first time since October 2024. BIST-100 index fell by 2% to 9,475 at Thursday's close compared to last week's close. Sub-indices of the financial sectors, led by the banking, diverged positively from the overall index. In fact, banking index rose by 1.3% wow.

In the US, the personal consumption expenditures (PCE) inflation data and the revision of the GDP growth data for the first quarter of this year stand out on the agenda. In Türkiye, the first quarter GDP growth data and CBRT’s Financial Stability Report will be announced.