The contraction in Russia’s July industrial production was less than expected at -10.8% y/y. Month-on-month activity rose 4.7% showing some signs of stabilisation.
Turkish unemployment declined more than expected in May to 13.8%, down from 14.9% in April. The better-than-expected outcome likely corresponds to an improving situation in Turkish industrial sector.
Preview
Polish July employment and wages data are due today. While we expect the labour markets data to further confirm the weakness in Polish labour conditions, we do not expect the data to move rates by much. However, we see more risk on the numbers for July industrial production, which are due for release tomorrow.
Turkish central bank will decide on interest rates today late afternoon. The recent inflation report from the Turkish central bank was relatively dovish and the outlook is still for lower Turkish inflation, so we expect the TCMB to cut its key policy rate by another 50bp next week to 7.75% – in line with the consensus expectation. We expect the key Turkish rate to be cut to 7.25% by year-end.
South African Q2 GDP data due out today will not provide pleasant reading as it should show another sharp contraction in, though it should not be as bad as Q1 GDP.
Trading update
All EMEA currencies weakened in yesterday’s trading session as the unexpected decline in consumer sentiment indicator sent commodity prices lower and both US and Asian equities weaker. Commodity currencies such as the Russian rouble and the South African rand were affected the most. Today, our research team is looking for a strong rise in the German ZEW indicator – up to 50. A strong reading could spur some renewed risk appetite as focus could shift from weak consumer spending to improved business sentiment
Poland central bank’s governor Slawomir Skrzypek reiterated on Monday that Poland’s monetary policy continues to be on an easing bias. If we are right in our call for weak labour market data and an even larger decline in July industrial activity we are likely to see some downward pressure on Polish swap rates in the coming days as market participant could increase speculation about further rate cuts. We look for a final 25bp cut in the beginning of 2010.
