Political chaos in the Czech Republic continues

EMEA Daily

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Review

Yesterday Turkish Economy Minister Ali Babacan presented the Turkish government’s Medium Term Economic Programme. See our comment here.
Political chaos in the Czech Republic continues. The only clear fact is that there will not be any elections this year. At this moment it looks more likely that the general election will be held in its regular term of spring next year. The interim Prime Minister Jan Fischer said he will remain in the office, although this is conditional on parliament’s approval of the state budget deficit for next year to a maximum CZK170bn (or 5% of GDP). In the coming days there will be intensive discussion over the Finance Minister’s Janota proposed spending cuts as the parliamentary parties differ in their views of where to cut the budget deficit.
Keep an eye Romanian politics. This week the Romanian opposition is set to file a no-confidence vote against the centre-left government over planned wage reform due to be implemented as part of Romanian’s Standby Agreement with the IMF. We do not expect the no-confidence vote to “succeed”, but it might nonetheless be an indication of internal divisions in the coalition government.

Preview

We expect that the Turkish central bank (TCMB) to deliver another 50bp rate cut from 7.75% and 7.25%. The inflationary outlook is still benign due to low capacity utilisation and a stable currency.
Polish industrial production numbers for August due for release today. We are slightly less optimistic than the consensus expectation, but do not expect today’s number to move the Polish markets much.

Trading update

Over the past month Hungarian yields have dropped more than 50 basis points across the curve. Even though we still see room for further monetary easing in Hungary we believe the markets are getting a little too optimistic on the prospects for rate cuts. We are therefore increasingly seeing value in being in position for Hungary yields to spike.

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Published On Thu, Sep 17 2009, 05:54 GMT

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