Monday, November 1, 2010

EMEA Weekly : Helicopter Ben hovering over EMEA central banks

EMEA PMI looks set to inch up
In terms of key economic data out in the coming week, focus will be on PMI data for October for a number of EMEA economies and on Turkish inflation data. Overall, we expect PMIs to inch up across the region, while we expect Turkish inflation to have declined in October.

Czech and Romanian central banks to stay on hold
There will be rate decisions in both the Czech and the Romanian central banks next week. We expect both central banks to keep rates unchanged (but for different reasons). We do not expect any major market moves on the back of the outcome.

Federal Reserve dictates EMEA monetary policy
In our Fixed Income update, we look at the impact of the Federal Reserve’s impact on the conduct of monetary policy across the EMEA region. We argue that the Fed’s stepping up of quantitative easing of monetary policy is effectively forcing the hand of EMEA central banks, which are “forced” to postpone rate hikes and instead use alternative instruments, such as increasing reserve requirements on banks to curb credit

South African government attempts to curb rand appreciation
In our FX update, we look at the measures introduced by the South African government to curb the excessive strengthening of the South African rand, with alternative measures to a rate cut.

We are still happy to be long HUF/PLN
In our Strategy update, we look at our open trading recommendations. We especially highlight our recommendation to buy HUF/PLN, which has been performing well recently. Furthermore, we review the reason we have exited our Polish 2yr IRS strategy with a small profit.

Key macro numbers

PMIs likely to increase further
Next week, we will get PMI numbers for October for a number of EMEA countries. Overall, we expect the numbers to confirm that the manufacturing sector across the region is doing relatively well and is continuing to expand. Hence, we expect the PMI to increase across the region and mostly continue to be in expansionary territory - hence a reading above 50 on the index. We expect little to no market reaction on the PMI data.

Turkish inflation set to decline in coming months
Turkish inflation looks set to be heading lower in the coming months on the back of relatively strong base effects. The inflation numbers for October are likely to confirm that the downtrend in Turkey has been reinitiated after September’s upside surprise on inflation. Hence, we expect Turkish inflation to have dropped to 8.7% y/y in October down from 9.2% y/y in September.

Despite the outlook for inflation to drop to close 5% in the coming months we are worried that the downtrend in inflation cannot be maintained throughout 2011 - contrary to the Turkish central bank’s view. Hence, the output gap in Turkey has, in our view, more or less been closed and that combined with relatively strong money supply growth is likely to lead to increased inflationary pressures going forward. Therefore, we also expect Turkish inflation to start picking up again once the base effects disappear from the figures.

Estonian inflation further up
We look for a further rise in Estonian inflation in October. We expect Estonian inflation to accelerate to 4.4% in October on the rise in food prices. But the current jump in food prices should be viewed as a short-term rather than a long-term factor, even taking into account the fact that food prices will increase further in the coming months. We expect Estonian inflation to remain at a relatively high level for the rest of 2010 and 2011,
averaging 2.7 % y/y. However, we do not see strong inflationary pressures over a longer period of time as domestic demand remains very weak.

Full report : EMEA Weekly : Helicopter Ben hovering over EMEA central banks

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