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New Europe Weekly

On a knife−edge for the EMEA markets

Fri, Oct 30 2009, 14:12 GMT
by Lars Christensen

Danske Bank A/S

PMI inches up across the region, but who cares?

Next week will see PMI data for October for most countries across central and eastern Europe (CEE). In the recent month the PMI has rebounded across the region in line with the general global trend. We expect the PMI to have increased further from September to October in most countries in the region and in most countries the PMI will now have moved back to around or even above 50, indicating expanding economic activity in the CEE manufacturing sector. This is good news, but we doubt that this will get much attention in the CEE markets as other issues – primarily the ongoing market correction in CEE markets will dominate market sentiment going into next week.

Inflation to drop in Turkey and Russia

Turkish October inflation data could attract some attention. Lacklustre economic activity and strong base effects will push inflation to a new record-low of 4.3% y/y. However, according to our models inflation will bottom out in October and then gradually rise to around 6% in Q2 09. Hence we see limited room for more rate cuts. 
In Russia, we expect inflation to move down to single-digit territory, as we expect October inflation to drop to 9.7% y/y. The inflation outlook turned more benign and we see room for more rate cuts from the Russian central bank in the coming months. 

Fixed income outlook

As the calendar looks fairly thin in the coming week, FX markets are likely to be the key driver for fixed income markets next week. Turkish October inflation could attract some attention.

FX outlook

Our EMEA FX scorecard continues to send the most negative signals for the Hungarian forint and the South African rand, we continue to see the largest risks in these two currencies.
If the negative correction continues into next week it will likely hit all currencies in the region and it is unlikely that there will be any real safe havens. That said the scores for both the Polish zloty and the Czech koruna have moved back into more neutral territory in our EMEA FX scorecard, which indicates that these two currencies will outperform HUF and ZAR going into next week.

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Published on  Fri, Oct 30 2009, 14:15 GMT