CEE Market Insights
Week Ahead: While we only received a full picture of the July economic performance across the entire region last week, we are already moving on to monthly indicators for August this week. Poland will publish industry and retail sales growth. While household spending likely remained high, industry may suffer from fewer working days. Once these two indicators are released, we should be able to get a pretty accurate estimate of the extent of the economic slowdown in the third quarter with our now-casting model. Apart from that, the data on labor market conditions will be published. In Poland, nominal wage and employment growth are due, while in Croatia and Slovakia, the unemployment rate should remain low.
While markets are trying to digest what the ECB’s new measures may mean in the longer run, CEE will see first monthly indicators from the real economy from August, as Poland will release important figures that could provide important insight into 3Q19 GDP developments. Apart from this, the macro calendar is relatively empty for other countries. Therefore, CEE markets could be heavily affected by the Fed decision. A rate cut is in the cards, but the outlook from Chair Powell will be crucial, especially after the recent call from President Trump to cut rates to “zero, or less”. Brexit, as always, could also influence CEE markets, but the direction of the effect is hardly predictable here.
Last week’s substantial increase in Bund yields was not followed as much by most CEE countries, and therefore, spread narrowing was observable. The ECB still introduced measures, so we feel that our yield forecasts do not really need adjustment. FX markets were more divergent: while the zloty continued its recovery, the Hungarian forint remained hectic around all-time lows. A loose central bank policy could mean that volatility could remain high for the HUF. The Fed decision this week could play a major role for all currencies in CEE.