This morning, the economic landscape in Turkey and the CEE region came into focus. We witnessed the November inflation figures, which showed a decline from 48.6% to 47.1% on a year-on-year basis. This was slightly higher than the market's expectations. The 2.2% month-on-month reading has raised some questions about whether the Central Bank of Turkey can initiate its cutting cycle at the December meeting. In Hungary, the final third-quarter GDP numbers are set to be released, which are expected to confirm the economy's return to recession with a -0.7% quarter-on-quarter decline. Additionally, several important speakers are scheduled to appear today, including the Minister for Economy Marton Nagy.
Unraveling the Economic Tapestry of Turkey and CEE
Turkey's Inflation Conundrum
The November inflation data in Turkey presents a complex situation. A decline from 48.6% to 47.1% YoY is notable, yet it still remains relatively high. This movement has implications for the country's economic policies and the Central Bank's decision-making. The 2.2% MoM reading adds another layer of uncertainty. It makes one wonder if the bank will be able to start the cutting cycle as anticipated. Such fluctuations in inflation rates can have a wide-ranging impact on various sectors of the economy, affecting businesses and consumers alike. 2: The market's expectations play a crucial role in shaping the economic outlook. When the inflation figures deviate from these expectations, it can lead to adjustments in investor sentiment and market behavior. In the case of Turkey, the slightly higher-than-expected inflation may cause some investors to reassess their positions. This, in turn, can influence the currency and other financial markets. Understanding these dynamics is essential for making informed investment decisions and predicting future economic trends.CEE FX Divergence and HUF Weakening
The CEE FX market continues to show significant divergence. The Hungarian Forint (HUF) has been weakening further following Moody's decision to change the rating outlook from stable to negative and also lower the EUR/USD rate. On the other hand, the Polish Zloty (PLN) and the Czech Koruna (CZK) have been gaining. This divergence highlights the different economic conditions and market sentiments within the region. While some currencies are facing challenges, others are showing signs of strength. 2: The relationship between rates and FX is particularly evident in the CZK market. A renewed connection between the two has emerged, which could potentially lead to the EUR/CZK rate falling below 25.200 this week. This shows the importance of monitoring interest rate differentials and their impact on currency movements. In the case of the PLN, although it may not show a strong direct relationship with rates, the closure of earlier short positions is helping to dampen the pullback of the lower EUR/USD. Additionally, the National Bank of Poland's press conference on Thursday holds the potential for some hawkish repricing, which could provide an additional boost to the PLN and potentially lead to EUR/PLN levels below 4.280.READ MORE