Review

  • Yesterday, the Polish Prime Minister, Donald Tusk, said that 3.5% y/y growth is possible in 2010 but that to expect it would be “overly optimistic”. This puts us in the overly optimistic camp, as our projection following the release of Q2 GDP data was for 3.5% growth.

  • The Russian central bank kept its key interest rates unchanged and sees the medium- and long-term inflation pressures as being subdued. We expect the central bank to continue to ignore mounting inflation pressures for the rest of the year to justify the current loose monetary policy. However, a rate hike is likely to be unavoidable in early 2011.

  • Contrary to hawkish comments recently from various Czech central bank (CNB) board members, the CNB’s Vice Governor, Vladimir Tomsik, said yesterday that he can see anti-inflationary risks and hence interest rates will not need to rise until H2 11. We completely agree with Mr. Tomsik’s comments. In fact, we believe that interest rates in the Czech Republic are appropriate - or even too high.

  • Estonian industrial production has demonstrated a continuation of robust growth and the outcome in July (25% y/y) was better that we expected (23.3% y/y). However, the major contributor to growth was the electrical and optical equipment industry, which consists of only a few companies and hence the result could be deemed a "one-off”.

  • Kazakhstan is likely to upgrade its official GDP growth forecast for 2010 from 4% to around 5%, according to the finance ministry. The GDP forecast for 2011 is 3.6%. Inflation is expected to remain in the 6-8% corridor.


Preview

  • We expect, in general, for PMIs in August to have dropped, but we also expect them to stay above the critical 50 level, indicating continued expansion in the EMEA economies. That said, the risk is clearly on the downside.


Trading update

  • The South African markets came under some pressure yesterday as concerns over increased strike activity and a general rise in risk aversion weigh on the rand and the South African fixed income and equity markets. We seen a further risk of a sell-off in the rand going forward and it remains the currency in our EMEA FX Scorecard with the most negative score. Furthermore, in our view, the rand remains fundamentally overvalued.