Review
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Hungarian retail sales in September continued to show signs of strain, falling 7.3% y/y, down from August’s -7.2% y/y. We have updated our outlook on the Hungarian economy taking into account the latest economic release.
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As broadly expected the Hungarian central bank lowered its key policy rate by 50bp to 6.50%. The door is still open for further rate cuts though it greatly depends on the development in FX markets.
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In October Lithuanian IP declined 8.8% y/y, up from a drop of 15.2% y/y in September. Despite the signs of recovery, it is too early to say that this is a sustainable stabilization, as the biggest positive impulse came from electricity production and mining activities.
Preview
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Q3 GDP figures for South African will be the main focus today. We expect this to show an improvement in economic activity.
Trading update
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In general yesterday was positive for EMEA FX and fixed income markets, with the regional currencies in general trending up and yields and rates continuing to inch down. That said, it seems that some market participants are beginning to worry whether we could see a renewed sell-off in EMEA markets. Judging from our EMEA FX Scorecard, such worries are well-founded as our Scorecard is on a knife’s edge between bullish and bearish signals.
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On Friday we recommended buying PLN/TRY based on the highest (PLN) against lowest (TRY) scores on our EMEA FX Scorecard. Until now that has been a profitable recommendation as the zloty strengthened on Monday and the lira was losing ground. We keep the recommendation open.
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Last week we noted that increased worries over the situation in Greece and in particular Greek budget worries could spill over to the CEE markets. Concerns over Greece have continued into this week, but we have not yet seen any impact on the CEE markets. That said, we think the Greek situation is a potential “party spoiler” for CEE/EMEA markets – especially for the Hungarian, Romanian and Bulgarian markets.
