News
CZ: Negative – Sept retail sales dip 0.5% yoy (p2)
LT: Positive – Govt launches 10Y Eurobonds tap / Oct CPI comes in at 4.2% yoy (p2)
LV: Neutral – IMF and Government hold talks on fiscal consolidation in 2012 / Oct CPI comes in at 4.4% yoy (p2)
Today’s Events
BG: Sept Trade balance / CZ: Oct CPI / ES: Sept Trade balance / HU: Sept Trade balance / KZ: Sept Wages, KZT 10bn 5Y GB auction / LT: Sept Trade balance / LV: 3Q GDP (prelim), Sept Trade balance / PL: Policy rate decision / RO: Sept Trade balance / RU: OFZ auction, Sept Trade balance, Weekly CPI / SK: Sept IP, Trade balance / SL: Sept Trade balance
EEMEA Markets
Tuesday produced another round of data for the region which once again shows that economic activity is far from in free fall at this stage. Hungary and Romania released industrial production data for September while the Czech Republic released retail sales data, also for September. To the extent that the EMU crisis is moving rapidly, rendering September well in the past at this stage, we keep in mind that the risks to the upcoming data are to the downside.
The biggest surprise data wise on Tuesday in CEE was industrial production data for Hungary, which posted a 3.7% mom gain in September. Unless revised, this more than compensates for August’s 1.1% mom decline and means that for 3Q as a whole industrial production showed a gain of 0.6% qoq compared with a decline of 2.2% qoq in 2Q. This may be enough to just avoid a qoq contraction in GDP in 3Q. Assuming that this gain is not pulled back in full in October, it also sets Hungary up for a more solid 4Q than we would have originally expected. Of course this is not to say that the economy does not have problems. HUF continues to weaken, the government is struggling to finance itself domestically at times, FX reserves will continue to decline over the coming quarters reflecting IMF repayments while the banking sector is moving further and further away from a position where it is willing to re-start lending. One good IP number does little to address all of the above.
Romania’s IP reading for September was more downbeat, down 0.5% mom, but this follows a 1.7% and a 1.5% mom gain in July and August respectively. On the quarter industrial production was up by a robust 1.6%. On a more negative note, Czech retail sales posted a decline of 0.7% mom SA. Following a decline of 1.0% qoq in 2Q, this reading set retail sales up for a decline of 0.7% qoq in 3Q, as well as putting in place negative carryover for 4Q.
Today focus will be on the NBP’s rate decision. We expect the NBP to leave its policy rate on hold. While the external environment has deteriorated since the Bank last met, Poland’s own data has been rock solid, limiting the extent to which the NBP can adopt a dovish tone post the ECB. Following a strong August, industrial production also posted a strong September while retail sales jumped 3.7% mom SA in September. We estimate that Poland is on track for GDP gains of 1.0% qoq in 3Q. Meanwhile inflation at 3.9% remains outside of the NBP’s target range. With all of the above in mind, the chances of the ECB’s decision impacting the NBP to the extent that the Bank signals a cut at this stage is unlikely in our view. That said the case for a hike has also been weakened by the ECB’s move.
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Gillian Edgeworth
UniCredit Research