CEE Macroeconomic and Fixed Income Research

Analysts’ Views:

Looking ahead for this week in CEE: A new month starts and therefore this week is packed with PMI indices from the region. Purchasing manager indices from Turkey, Poland, the Czech Republic and Hungary are to be released on Wednesday. These will be important to see what to expect from 4Q14 in terms of growth, after the likely slowdown in 3Q14 in CEE. The picture is by far not the same in the countries. Poland has been struggling with readings below 50 points for 2 consecutive months. Another data of this kind can just further reinforce our updated expectations for a more pronounced rate cut this year (earlier we have expected that the policy rate will only be slashed by 2% by this year-end, now we see it to arrive at 1.75%). In The Czech Republic, on the other hand, the readings have been solidly above 50 points, where some slowdown of the index cannot be ruled out. In Hungary, where the PMI figure usually shows strong volatility (last month the gauge dropped from 56 points to as low as 51 points), the index is less accurate in projecting future economic performance. The other important release this week will be the central bank’s rate setting meeting in Romania on Tuesday, from which we expect a cut of 25bp. The NBR provided RON 2.1bn to the market via a repo transaction with 7-day maturity last week; this is the second repo transaction in September and suggests that a cut in RON MRR is also possible on Tuesday. Apart from that, there will mostly be second-tier macro data released in CEE. The ECB’s monetary council meeting on Thursday should also be of significant importance for the region.

TR Macro: During its meeting with economists on Friday, the CBT said that it will follow tighter liquidity management going forward, but thinks that the increasing currency volatility is temporary. The CBT does not expect an improvement in annual food inflation in September and reiterates the upside risks to the 7.6% year-end CPI forecast. The CBT already tightened the liquidity on Friday and increased its daily FX sales to USD 40mn from USD 10mn. We maintain our 2.23 year-end USD/TRY forecast, but there are upside risk on our 9% year-end forecast for the two-year bond yield.

Traders’ Comments

CEE Fixed Income: Friday was characterized by better offers in CEE bonds with long end HGBs and Croatian Euro bonds selling-off between 5 and 10 bps. News flows in Macro & CEE markets were relatively insignificant on Friday with the major development over the weekend was the outlined plans by Catalonia’s government to conduct a referendum on 9th of November. The topic could take its toll on Spanish bonds this week with potential spill over to other European bond markets including CEE bonds. In other markets, Democracy protests in Hong-Kong caused spiked in volatility with HSI volatility index rising as much as 27%, most since august 2011 and the Hang Seng index declined 2.25% after falling as much as 2.5% most since February 4th erasing year to date gains.