Market movers ahead

It looks like being an eventful week in terms of upcoming economic data. Attention will undoubtedly focus on the preliminary fourth quarter 2009 GDP, which is due for release in a number of CEE countries, such as the Czech Republic, Hungary, Latvia and Estonia. In general, the numbers should confirm that the economic downturn in the CEE economies has bottomed out, which should be seen in the Q4 GDP figures. However, the extent of the improvement in each of the above mentioned countries differs significantly.

The best position has undoubtedly been the Czech Republic, where we expect the economy to grow by 0.9% q/q in the last quarter of 2009. While looking at the Baltics, despite expecting the pace of decline in Estonian GDP to slow down (we see the GDP contraction in Q4 of 13.1% y/y, up from a fall of 15.6% y/y in Q3), the majority of such improvement comes from the positive base thus a real recovery is still is not being seen just yet. Latvia has experienced the greatest fall in growth in the EU economies and continues to have one of the most troubled outlooks. GDP recovery in 2010 will be slow and fragile. Nonetheless, we expect the pace of contraction to decline somewhat in Q4 09 (we see Q4 GDP as contracting by 15.3% y/y, up from a 19% y/y fall in Q3).

Besides the preliminary Q4 GDP numbers, inflation for January is scheduled for release across the EMEA region.

FX Outlook: It doesn't look good

Our updated EMEA FX Scorecard now shows a negative score for all currencies included in our EMEA FX Scorecard. Hence, the overall trend of increasingly negative signals for the EMEA currencies continues. We still recommend being cautious, with the eurosensitive CEE currencies, especially the HUF and the CZK, which continues to be highly sensitive to negative news flow concerning Greece and other troubled eurozone countries.

Scorecard trade of the week - Buy PLN/CZK

Last week we recommended buying ZAR/CZK based on our EMEA FX Scorecard. Over the past week, that trade has performed quite well. This week, however, the highest scoring currency – or rather the least negative score – was the PLN, while the lowest scoring currency was CZK. Therefore we recommend buying PLN/CZK going into next week.