US worries could become EMEA worries

- Market movers ahead: PMI and Polish Q2 GDP "The recovery in the Polish economy continues and we expect this to be confirmed by Q2 GDP that is due to be published next week. Hence, we expect Polish GDP to have grown by 3.3% y/y Q2 – up from 3.0% y/y in Q1 and slightly more optimistic than the consensus expectation of 3.2% y/y. Nonetheless, it is now clear that Q2 probably was the peak for economic growth in Europe and concerns about growth in the coming quarter have increased sharply. Therefore, the GDP numbers look even more backward-looking than normal – everybody in the market realises that the recovery continued in Q2, but investors are increasingly worried about future growth. PMI data for August due for release across the region will provide a little more information about how the EMEA economies are holding up. Overall we expect PMI to have dropped across the region, but we also expect the PMIs in general to stay above the critical 50 level indicating continued expansion in the EMEA economies. That said the risk is clearly on the downside.
- Fixed Income Outlook: Be careful with the long-end of the curve "As we have emphasised in EMEA Weekly in the past couple of weeks we are likely to see EMEA central banks turning more dovish going forward – either by cutting rates or by not hiking as early and as much as previously expected. The only notable exception is Hungary where the MNB could be forced to hike rates more than previously expected. The outlook for lower rates in most EMEA countries continues to be supported by our Monetary Policy Tracker (MPT) which now points to monetary easing in the Czech Republic, Romania, Turkey, Israel and South Africa over the coming nine to 12 months, while it continues to point toward monetary tightening in Hungary and Poland."
- FX Outlook: Nothing to buy… "It is rather depressing to look at our EMEA FX Scorecard this week, as five out of seven currencies in the Scorecard score negatively indicating a potential for further weakness in the EMEA currencies on a one- to three-month horizon. The best scoring currency for the second week in a row is the Israeli shekel, but the score on ILS is only slightly positive – so it is not exactly a strong buy signal. The fact is that this looks more like an ugly contest than a beauty contest – as the general outlook for the EMEA currencies in the short run appears to be rather bleak."
- Scorecard-based trade of the week: Buy ILS/ZAR "The shekel remains the highest scoring currency in our EMEA FX Scorecard, while the South African rand remains the most negative scoring currency in the Scorecard. Hence, for the second week in a row our Scorecard-based trade of the week is to buy ILS/ZAR. Over the past week the cross is down somewhat."

DenDanske EMEA Weekly 20100827

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