News
BG: Neutral – FX reserves up 1% mom in October (p2)
CZ: Negative – Govt sells CZK 2.62bn CZGB 5.7/24: bid/cover at 1.05, avg yield hits 3.51%, (p2)
RO: Mixed – NBR cuts policy rate by 25bp to 6% / Sept PPI increases 0.9% mom (p2)
Today’s Events
CZ: CZK 8bn 364b t-bill auction, Policy rate decision / CR: Sept Retail trade / HU: Aug Trade balance (final), HUF 20bn 2014, HUF 15bn 2017 and HUF 8bn 2022 GB auction / LV: Sept IP / RO: RON 0.5bn 2013 GB auction/ RU: Oct Services PMI, Oct CPI, INt reserves as of 28 Oct / TK: Oct CPI and PPI
EEMEA Markets
PMI data for CEE for October point to some weakness in those economies most exposed to EMU, but on the whole suggest that economic activity did not show a sharp incremental decline in October relative to September. The outcome was better than we had expected given the decline in the EMU flash estimate for October. Averaging the PMI indices for the region, October saw a minor 0.1 point increase to bring it to 51.1. There was good news in Poland, Russia and Turkey, more negative news in the Czech Republic and Hungary. Turkey, the first country in the region to show a decline in the manufacturing PMI index in 2Q this year, posted an impressive 1.8 point increase to bring the index to 53.3, its highest since March and back above its long term average. Output, new orders and employment all showed gains though notably the increase in new orders was down to domestic rather than external demand. In line with currency weakness both input and output prices increased. All in all, the reading is in line with a central bank which should modestly tighten monetary conditions. The 1.5 point gain in Poland was also impressive; bring the index to 51.7, half a standard deviation above its long term average. Gains in output, new orders including export orders and employment all played a role. As in Turkey, FX losses appear to have taken their toll by pushing input and output prices higher. This sort of reading is in line with a central bank that keeps its policy rate firmly on hold. Russia edged upwards by 0.4 points to 50.4. Export orders drove the increase in new orders while output edged upwards more marginally. The Czech Republic and Hungary were the two weak links. In the Czech Republic the index was down 0.6 points to 51.7, though it is important to note that this brings the index to just below its long term average. The decline was driven by output and export orders. In contrast with the other countries above, export and import prices both showed declines. This is yet more evidence that though interest rates are low in the Czech Republic, there remains a case for weaker monetary conditions, at least via a higher EURCZK. The decline in Hungary was particularly large at 2.6 points, though we caution that this index is more volatile than the rest. New orders slumped a whopping two points. Our estimates suggest that gains in economic activity came to a halt in 3Q, with this data pointing to a contraction in 4Q.
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Gillian Edgeworth
UniCredit Research