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New Europe Weekly

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The correction is not over yet

Fri, Nov 6 2009, 13:13 GMT
by Lars Christensen

Danske Bank A/S

Focus on inflation and GDP

In the coming week the macroeconomic calendar is dominated by inflation numbers for October and GDP numbers for Q3, for a number of countries across the region. While we expect to see some stabilisation in the GDP numbers for the Czech Republic and Hungary, the Estonian and Lithuanian data are likely to show a continued deterioration in the macroeconomic environment.

In terms of inflation, we are likely to see inflation continue to inch down across the region. That said, the disinflationary process is coming to an end in certain countries in the region – most notably in Turkey, where we already have the October inflation numbers – a reading of 5.1% y/y probably is the bottom for inflation.

Despite a relatively busy macroeconomic calendar next week we do not believe the data will do much to change sentiment in the EMEA markets as global sentiment is likely to
continue to overshadow the news on regional macro data.

Fixed income outlook: FX sell-off short cuts the easing cycle

Going into next week the regional fixed markets are likely to continue to take the lead from the EMEA FX markets. The action in the regional fixed income markets are likely to become somewhat less synchronised than it has been the case over the past week and local macro data could blur the picture.

Looking ahead we believe that there is a good chance that the easing cycle has come, or is in the process of coming, to an end across the region. Most notably we believe that the Turkish central bank (TCMB) is close to ending its easy cycle and we forecast only one more 25 basis point rate cut from the TCMB. However, further currency weakness in the coming one to two weeks could easily short-cut the Turkish easing cycle. That could also be the case for Romania and Hungary.

FX outlook: More weakness to come, sell the rand

Our EMEA FX Scorecard is still signalling further weakness in EMEA currencies. It is still primarily the technical scores and the carry scores that is weighing on the overall score. However, it is also notable that global conditions have turned less supportive in recent weeks and the score could turn negative in the coming weeks if the weakness in the global stock markets continues.

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Published on  Fri, Nov 6 2009, 13:18 GMT