Focus remains on the negotiations in Riga between the Latvian Government and the IMF. On Sunday night it was reported that the coalition parties in the Latvian Government have agreed between each other to accept the IMF’s demand for further fiscal tightening in 2010 - this after on Friday it was reported that some of the parties in the coalition were not willing to accept the IMF’s demands. Prime Minister Dombrovskis on Sunday said that the parties in the coalition government would sign a deal with each other on Monday. Whether this will be enough to open the door for the pay-out of the next instalment of the IMF loan is unclear. The IMF has not commented on the deal between the coalition parties.
The Hungarian central bank (MNB) will announce its rate decision today at 1400 CET. We expect – in line with consensus – the MNB to cut its key policy rate by 50bp to 9.00%. With the Hungarian economy in deep recession there is no real inflationary pressure and given the fact that Hungarian forint has firmed up somewhat recently on an improved global financial environment we think the MNB now seems confident that it could initiate a gradual and cautious easing cycle.
Trading update
Good news on the global macro economic situation and positive earnings surprises in the US helped global stock markets rally last week. The rise in risk appetite has also helped lift the EMEA FX and fixed income markets.
For now it seems that the rise in risk appetite is pretty robust and that should continue to support the EMEA markets in the coming week. We would, however, keep an eye on the situation in the Latvia – which still has the potential to spook investors and spill over into other CEE markets.
