Review
- On Monday the Latvian parliament passed what could be considered a watered-down version of a US-style non-recourse law. We think this is symbolic of the change in political sentiment we are seeing not only in Latvia, but also in a number of other Central and Eastern European countries where political populism is on the rise. Recently the markets have been spooked by the actions of the Hungarian government and in our view there is good reason to keep an eye on a possible swing in political sentiment in a more populist direction in a number of CEE countries. With upcoming parliamentary elections in Latvia and municipal elections in Hungary, we would be particularly concerned about these two countries, but populism is also on the rise in other countries in the region.
Preview
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Data on Q2 GDP in Lithuania is due to be released today. We expect the recovery of the Lithuanian economy to continue and forecast GDP to have contracted by 1.7% y/y in Q2 10 from -2.8% y/y in Q1. The recovery is based solely on export development, which is not sustainable. The uncertainty related to the Lithuanian recovery is mainly related to investments.
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Data on South African inflation in June is also due to be released today. This number could get some attention following last week’s decision by the South African central bank to leave rates unchanged.
Trading Update
- Risk appetite seems to be returning and that has helped EMEA markets since the start of the week. Most notable in our view is the continued strengthening of the South African rand – against all odds. It is no secret that we think that both long-term and short-term factors are against the rand, but so far our bearish call on the rand has proved incorrect. The question however is how long the rand bull run can continue.
