History should return to the region. this week. Today’s calendar is blank, but tomorrow we will see October inflation in Poland and a third quarter GDP preview in the Czech Republic. In Poland, we expect inflation to continue falling from 8.2% to 6.9% year-on-year, above market expectations. The Czech Republic PMIs will be released on Wednesday and then on Thursday we will have the Polish and Hungarian PMIs. The Czech National Bank (CNB) will meet on the same day. We wait that the cutting cycle begins with a 25 bp move, which is also the market consensus. However, according to polls, it appears to be very close. The central bank will also publish a new forecast, the last for this year. Inflation in Turkey will be published on Friday, where we expect a slight increase from 61.5% to 63.0%. Moody’s review of Romania’s sovereign rating will also be published on Friday, but this should not be a major event.
In the foreign exchange market, the focus should be mainly on the Czech koruna, which we expect to strengthen below 24.60 EUR/CZK in the meeting on Thursday, as indicated by the strong interest rate differential of the last few days . On the other hand, if we see the Czech crown weakening in the coming days due to the global situation, this reduces the probability of a CNB rate cut, which would ultimately be positive news for the Czech crown. Achieving a rate cut, which is our base case, would bring the krona closer to 25.0 EUR/CZK.
In Hungary, we believe that the market still has room to price in a new path of rate cuts for the National Bank of Hungary (NBH), leaving the HUF vulnerable to touching 386 EUR/HUF again, in our opinion.
In Poland, the inflation figure will be the main driver of PLN and, in our opinion, excessive bets on rate cuts. A stronger PLN is our strongest conviction in ECO at the moment, however, the question is whether the IPC will offer better buying levels or will already start a second wave of PLN appreciation. Given our inflation call, above consensus, we consider the PLN to be quite strong these days.