EMEA Weekly: Greasy Greece

Market movers ahead: Czech rate decision in the spotlight

The Czech central bank meeting will prove to be interesting, as uncertainty over the outcome is fairly high. We expect the Czech central bank (CNB) to cut by 25bp, which would bring the key policy rate to 0.75%. In our view, the room for looser monetary conditions is there, taking into account subdued inflation with practically non-existent inflationary pressures. There is nevertheless some risk that the CNB will stay on hold, given the current uncertainty in financial markets related to Greece’s debt problems and the risk of more negative spill-over into CEE markets in case of contagion. Furthermore, the new inflation and GDP forecast, which the CNB board will have available at the meeting, will be crucial for the decision.

Besides the rate decision in the Czech Republic, Turkish, Russian and Estonian inflation figures for April are due for release. In particular, Turkish inflation will be worth watching as we expect it to climb above 10% in April: we forecast 10.3% y/y in April, up from March’s 9.56% y/y.

FX outlook: watch out for Greek contagion

Even though worries over the Greek situation have eased slightly, they are likely to remain a key driver in EMEA markets for some time to come. We therefore recommend staying very cautious in EMEA FX markets – naturally, most cautious on the CEE currencies going into next week. In this connection, it should be noted that our EMEA FX Scorecard has turned slightly negative on the EMEA currencies this week, indicating the risk of further weakness.

Scorecard trade of the week – Buy TRY/RON

Last week, we recommended buying TRY/ZAR based on the signals from our EMEA FX Scorecard – buying the highest-scoring currency against the lowest-scoring currency on the Scorecard. The trade has performed reasonably over the past week. Given that TRY is still the highest-scoring currency and RON now the lowest, we recommend buying TRY/RON going into next week.