Review
- Romanian inflation remained flat at 4.7% y/y in December compared to November. With inflation likely to continue to inch down (given the non-existent inflationary pressures in the economy), it is most likely that, following the surprise rate cut in January, the Romanian central bank will continue its monetary easing going forward to fight the economic crisis. Nonetheless, we still think that given the ongoing political and financial uncertainties, the NBR risks renewed selling pressure on the leu if it cuts too aggressively.
Preview
- Czech retail sales for November are the only economic data due for release in the EMEA region today. We expect retail sales to improve, but this will partly be due to a base effect. In general we expect weak retail sales going well into 2010, and begin to stabilise at the end of 2010 when private consumption recovers.
Trading update
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EMEA FX markets were hit on Tuesday afternoon after China’s central bank raised the bank’s reserve requirements, indicating that the global liquidity boom that has been providing a good environment for EMEA markets is a bit closer to ending. Furthermore, concerns over the situation in Greece is hitting sentiment in EMEA markets, and finally the overall score for our EMEA FX Scorecard has turned negative this week, indicating that we could see a rise in risk aversion.
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The risk of growing risk aversion could have some important ramifications in CEE fixed income markets. To be positioned for that we recommend receiving 2yr CZK swap rates against paying 2yr HUF. The position will benefit from higher risk aversion and it offers a solid return on an ongoing basis.
