Review

  • Polish wages grew by only 2.0% y/y, much less than expected. Such weak wage growth further limits private consumption, thereby negatively affecting growth. As private consumption continues to weaken, we see inflation falling below 2% in H1 2010.

  • South African retail sales in September fell slightly more than expected, by 5.1% y/y, but the pace of decline was smaller than the revised 6.5% y/y fall in August.

  • The Czech central bank board member, Vice Governor Mojmir Hampl, who voted for stable interest rates at the latest CNB monetary policy setting meeting, said in an interview that rates could go either way depending on the balance of risks to the CNB’s new forecast. Mr Hampl said that the crisis could lower potential output, which could lead to demand-led price pressures consequently requiring higher rates. The risk of lower potential output was one of the main reasons why he advocated stable rates at November’s meeting.


Preview

  • The Turkish rate decision later today is the key event of the day. We expect the Turkish central bank (TCMB) to cut by 25bp to 6.50% and we believe that today’s rate cut will mark the end of the Turkish monetary easing cycle, though we do not think that the TCMB has reached that conclusion yet. Therefore, we don’t expect the TCMB to announce the end of the easing cycle – rather it will likely keep the door open for further monetary easing and probably downplay the recent upside surprise in inflation (in October). Nonetheless, a change of rhetoric to a more neutral direction from its present dovish stance can be expected, given recent inflation developments.

  • Polish industrial production for October is worth following as well. We expect a deeper fall in industrial production in October compared to consensus but the data are likely to confirm the overall picture of a continued recovery in the Polish manufacturing sector.


Trading update

  • EMEA FX markets were rather mixed yesterday. But as volumes remained low in CEE FX and fixed income markets one should not read too much into yesterday’s currency moves.

  • Given much weaker wage growth in Poland, we see downside risks to Polish rates and yields going forward.