Regarding data, today we will know the result of August industrial production in the Czech Republic, which will also provide important labor market data for the central bank. Hungary’s state budget figures will be published later. Tomorrow we will have inflation in Hungary and the Czech Republic for September. In Hungary, we expect a drop of 16.4% to 12.4% year-on-year, in line with market expectations but slightly above the Hungarian National Bank’s expectations. In the Czech Republic, we will also see a jump from 8.5% to 7.2% year-on-year, slightly above market expectations, but this time in line with the Czech National Bank.
On Thursday we will also see inflation in Romania, which after stagnating in August should continue to fall from 9.4% to 8.5% year-on-year in September. In Romania we will also see the final GDP figures for the second quarter. Current account data across the region will be released throughout the week.
Regarding the sovereign rating, on Friday S&P will publish revisions for the Czech Republic (AA-) and Romania (BBB-). In both cases, we believe the rating and outlook will remain unchanged.
In the currency market, the Central and Eastern European region is balancing between a strong US dollar and more favorable interest rate differentials. However, it’s unlikely we’ll see a clear winner in this contest this week. The Polish zloty is still stabilizing after last week Meeting of the National Bank of Poland and although it closed at new strong levels on Friday, the press conference suggests further rate cuts, so support for higher rates in the market will not last long in our view. Therefore, we expect a return above 4,600 EUR/PLN. On the other hand, we believe that the Czech Koruna has overcome the rate decline at the short end of the curve and we believe that it will retreat towards 24,450 EUR/CZK. The Hungarian forint will be more interesting. While we don’t see any bad valuations at the moment, tomorrow’s inflation could confirm the NBH’s aggressive bias, which should also help the currency continue to rise towards 384 EUR/HUF.