News
BY: Positive – Belarus requests IMF package (p2)
BG: Neutral – April cumulative budget shortfall falls to 0.7% of GDP (p2)
CZ: Negative – Manufacturing PMI eases to 55.9 / Neutral – State budget deficit widens reaching 60% of the full-year plan (p2)
RO: Positive – FX reserves rise to EUR32.7bn (+2% mom) (p2)
PL: Neutral – Govt auctions PLN 5.8bn POLGB (PLN 1.63bn 2021, PLN 2.04bn 2016, PLN 2.09bn floater 2015) in exchange POLGB 2011 (p2)
UA: Positive – Amended pension reform bill submitted to parliament (p3)
Today’s Events
CZ: CZGB CZK 6bn 91 t-bill auction / HU: April Retail Trade (Preliminary); March Trade Balance; HUNGB 2014 HUF 20bn, 2017 HUF 15bn, 2022 HUF 10bn auctions / LV: Parliament votes on Presidential Candidates / RO: April PPI / SRB: RSD6bn 6M t-bill auction / RU: Foreign Currency & Gold Reserves as of 27 May
EEMEA Markets
As was the case in Asia, EMU and the US, manufacturing PMI data showed across the board declines in CEE in May. Over the past month (3 months) the index in the Czech Republic, Hungary, Poland, Russia and Turkey declined 3.1 (3.9), 4.6 (4.7), 1.8 (1.2), 1.5 (4.5) and 2.2 (7.9) points respectively. Closer ties to the Middle East help to explain the sharper decline in Turkey. The output components were down across the board, as were new orders. The positive news surrounds the fact that in all five countries the index remains above 50, while price pressures have also declined significantly.
Given the sharp and rapid decline in these indices, the trend requires careful monitoring from here. If short lived, it should not have significant implications for monetary policy in the region on a multi-quarter horizon, though this data has the potential to prompt second thoughts within central banks, such as the NBP, on further near term rate hikes. Our baseline assumption is that we see the PMIs bottom out over the next couple of months, before showing a gradual recovery. In the event of more persistent declines, a review of our monetary policy expectations would become more unavoidable. For example within CE3 we have held the view for much of this year that central banks prefer currency gains to rate hikes given that growth is much more driven by external than domestic demand. Against a backdrop of a weak to moderate recovery in domestic demand, easing price pressures and easing external demand, the argument in favor of currency gains would weaken significantly. In Turkey the picture is more complicated as domestic demand remains strong while external demand is clearly showing signs of slowdown. The CBT will hope that domestic demand pressures will also ease to facilitate a turnaround in the C/A deficit.
Gillian Edgeworth
UniCredit Research