Turkish lira on the edge

- Market movers ahead: TCMB on hold, Polish inflation low "We do not expect any major change in rhetoric from the Turkish central bank (TCMB) when it announces its rate decision next week. Along with the market consensus, we expect the TCMB to keep rates on hold, with the borrowing rate staying at 6.50%. That said, the TCMB will keep all options open and, if anything, we would recommend investors to be positioned for more dovish rhetoric. Read more on page 4. Polish inflation and industrial production will be in focus next week. We expect inflation in August to surprise on the downside compared to the consensus and stay flat at 2.0% y/y (consensus sees a moderate increase to 2.1% y/y). We see industrial production surprising on the upside in August to grow by 15% y/y, up from July’s 10.3%."
- Fixed income outlook: CHF/HUF at 230 will trigger MNB hike "Hence, there is no doubt that the MNB is considering to hike interest rates despite the fact that inflationary pressures seem to be moderating and growth remains lacklustre. Judging from our Monetary Policy Tracker one should not really expect that kind of aggressive rate hikes that is now being priced in by the markets – as it confirms that inflationary pressures are easing which in itself is an argument for rate cuts. So why is the MNB considering rate hikes? And is it rational for the markets to speculate the MNB might hike rates? The most important reason is of course that the situation in Hungary in no way can be described as “normal” as concerns over financial sector stability continue to “overrule” everything else. Read more on pages 3-4."
- FX outlook: volatile week ahead for the lira "Next week could be something of a rollercoaster for the Turkish lira, with three big events on the agenda: the referendum on constitutional changes (Sunday 12 September), the Q2 GDP numbers (Tuesday) and the rate decision from the TCMB (Thursday)."
- Scorecard-based trade of the week: buy ILS/ZAR "For the fourth week in a row, the highest-scoring currency in our EMEA FX Scorecard is the Israeli shekel, while the lowest-scoring is the South African rand. Therefore we continue to recommend buying ILS/ZAR, based on our EMEA FX Scorecard."

DenDanske EMEA Weekly 20100910

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