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New Europe Weekly

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Inflation on the agenda next week

Fri, Oct 2 2009, 12:37 GMT
by Lars Christensen

Danske Bank A/S

Key events next week

Next week brings September inflation figures in a number of countries. In general we expect inflation to inch down a little further. In the Czech Republic we expect inflation at 0.0% y/y, while Russian inflation is expected to drop to 11.0% y/y.

On Wednesday the Hungarian central bank is due to release the minutes from its latest monetary policy meeting.

Fixed income outlook

Markets rates have moved sharply higher in Hungary and Turkey this week as market participants reduce bets on further monetary easing. We continue to look for upside risk on Hungarian market rates in particular.

In Russia the trend is in the opposite direction following the Russian central bank’s aggressive cut earlier this week. We look for some short-term downside risks for Russian rates, as authorities increase focus on supporting growth rather than worrying too much about inflation – which for the moment continues to trend down.

FX outlook

It has been a bad week for the South African rand which has lost more than 4% on the back of news that a large merger deal within the mobile sector was called off and the central bank said it boosted dollar purchases to weaken the exchange rate. Profit taking on long rand positions has also probably played a role.

Our EMEA FX scorecard continues to send the most bullish signals for the zloty. The long-term valuation of the zloty looks particularly attractive and we therefore see value in being long in the zloty versus other currencies in the region.

It is notable that the Russian rouble has been the best-performing currency in our EMEA universe over the past month. We attribute higher oil prices as a key driver for the positive sentiment. Going forward appreciation pressures are likely to persist given the current environment. However, with an outlook for lower interest rates and a sharp rise in public spending around new year, we expect some pressures to arise going into 2010. Russian authorities are focused on supporting growth rather than taming inflation, and that weighs on our 3-6 month rouble outlook.

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Published on  Fri, Oct 2 2009, 12:41 GMT