Review

  • Wage growth continues to slow in Hungary. Gross average wages in August rose only 0.6% y/y in August compared to 1.4% y/y in July, suggesting that the economic recession in Hungary is now clearly affecting the labour market with wage growth moderating quite strongly.

  • Yesterday, the Czech central banker Miroslav Singer said that a double-dip recession is possible in the Czech economy despite some optimistic signals from key economies in Western Europe. Mr Singer continues to advocate his dovish stance towards monetary policy in the Czech Republic.


Preview

  • Another light calendar today. Latvian producer prices for September and Polish core inflation for September are on the agenda.


 Trading update

  • Hungarian swap rates continued to fall sharply across the curve after the rate cut on Monday. Even though we view the drop in rates in Hungary as excessive, market sentiment is very strong. Czech rates inched down as well on the possibility of further rate cut in the Czech Republic.

  • The strong tendency for lower rates and yields across the EMEA region seems somewhat irrational to us, and we are concerned that we could see a sudden reversal of this downtrend. We see the biggest risk for such a reversal in Hungary, Turkey and Russia, whereas there is much smaller upside risk for Polish and Czech rates and yields.

  • The Russian central bank (CBR) confirmed yesterday that it bought over USD 1bn in FX markets to curb RUB appreciation as oil prices continue to surge. With oil prices at these levels, the CBR is likely to bolster FX-reserves rather than allow too much appreciation of the rouble.

  • Outside the EMEA region, Brazil imposed a 2% tax on foreign capital inflows towards equities and fixed income investments. This is clearly negative for BRL, and even though it has not had any spill-over onto EMEA currencies, it is worth noting that the proposal has some similarities to the withholding tax on foreign investments into Turkey. So there might be some spill-over to the Turkish markets at some point. Read more in flash comment - Brazil imposes tax on foreign capital inflows.