Fully as expected the Turkish central bank yesterday cut its key policy rate by another 50bp to 8.25%.
The Polish labour market data for June surprised on the downside, potentially opening the door for further monetary easing in the coming months. The weak labour market conditions are likely to weigh on private consumption in the coming quarters. See our comment.
We are increasingly concerned about the budget situation in Poland and especially worried about the different "tricks" used to artificially improve published finances - see comment.
Yesterday, the Icelandic parliament voted in favour of authorising the government to begin accession talks with the EU. In our view Icelandic EU membership is still some time away, and there are still a lot of obstacles to overcome.
Preview
Market attention will turn to the Baltics once again as the IMF mission to Latvia is expected to wrap up its negotiations and leave Riga today. Comments over the latest couple of days from the Latvian Prime Minister indicate that the negotiations have been far from smooth. Furthermore, we note that the Nordic banks with the largest exposure to the Baltic markets will report Q2 earnings in the coming days.
Polish industrial production and producer prices for June will be released today. We are looking for a moderate downside surprise on industrial production.
Trading update
Sentiment was relatively positive yesterday, but there were limited movements in FX and fixed income markets. We see some risk from the Baltic markets, which potentially could spoil the fun in the CEE.
EMEA markets are likely to track global sentiment today. If we are right in our call for a negative surprise on Polish industrial activity, that could increase speculation of another rate cut and thus exert downward pressure on rates and the Polish zloty.
