Yesterday, the release of Hungarian and Romania inflation data for July confirmed very low inflationary pressure. In Hungary the rise in inflation was only attributable to the VAT hike. Please read more in our comment.
Russia's gross domestic product (GDP) contracted a whopping 10.9% y/y in Q2, down from -9.8% y/y in the previous quarter according to the Russian state statistics service. The reading, although lower than the consensus expectation of -10.4% y/y, was not a big surprise given lacklustre industrial activity during Q2.
The final Czech industrial production figures for June showed a drop of 12.2% y/y, much better than May’s -22% y/y. The breakdown furthermore showed an improvement in all segments, likely reflecting improving economic activity in Euroland. Going forward, Czech industrial output shouldn’t fall as deeply as seen up until May.
South Africa manufacturing production for June dropped 17.1% y/y, compared to a revised -17.2% y/y in May. The outcome confirms that the manufacturing sector remains under severe pressure and furthermore confirms that the country is lagging behind its EMEA peers (e.g. Turkey), which have already seen some stabilisation in industrial production.
Preview
A rather light calendar today with only South African retail sales for June and Estonia’s June current account data on the agenda. In our view, South African retail sales are unlikely to be encouraging as depressed consumer spending has been translating into poor retail sales results. A bad reading could send the rand weaker.
Trading update
Yesterday, EMEA currencies were under heavy pressure driven by reduced risk appetite for EM currencies. The Russian rouble saw some heavy selling pressure during the day, and we suspect that the Russian central bank was active in currency markets in supporting the currency.
As currencies were pushed weaker, swap rates were in general pushed higher across the region. This was most notable in Turkey, where two- and five-year cross currency swap rates were lifted by more than 10bp.
