Investment Research General Market Conditions 11 December 2014 EMEA Weekly Bank of Russia shooting into the sky Today on 11 December 2014 Russia s central bank hiked its key rate by 100bp to 10.50% as consumer prices continued to accelerate quickly to 9.4% y/y as of 8 December 2014. The hike was expected by the consensus (we had expected a 250bp rate hike), which moved up by 50bp a day before the announcement. As the rouble has lost around 15% against the US dollar and the euro within the last 30 days, inflation expectations have been deteriorating further, pushing the central bank to act. The central bank is also admitting that Russia s counter sanctions to ban imports of certain foods are pushing consumer prices up. The Bank of Russia expects 2014 year end CPI to be around 10% y/y. It furthermore estimates that the cumulative effect on the CPI from the weakening rouble and the foods import ban will amount to 4.9pp by the year-end. We believe that double digit inflation will be seen through all Q1 15, forcing the central bank to hike further. However, despite its consistent monetary policy aiming more and more to target inflation, the 100bp hike was a disappointment for rouble bulls. Before the decision, up to 500bp was already priced in. Thus, the realised hike has been seen by the markets as a disappointment, leaving the rouble to tumble further. Contents Calendar...3 EMEA FX Scorecard overview... 4 Currency forecasts, EMEA...5 Recently the central bank has been seeing more political pressure to add stability to rouble s spot rate. It has been aggressively spending FX reserves to support the rouble, selling over USD5.3bn since 1 December 2014, an action we would call throwing money on the fire. The spot market saw tiny temporal reliefs after the interventions, but the rouble weakened further in line with the falling oil price. Neither rate hikes, interventions nor tightened liquidity are helping the rouble to stay stable. As the oil price is approaching USD64/bbl, we expect that the rouble will be heading to its new equilibrium price of around 58 against the USD and 72 against the EUR. A further squeeze of money supply and rate hikes will damage the Russian economy, spreading the lagged effect into 2016 as well. Thus, we see our current 2015 GDP forecast of -1.8% y/y as optimistic, because downside risks are constantly rising. The central bank expects 2015-2016 GDP growth to be close to zero on weak private consumption and shrinking fixed investments. Despite, the weak economic situation the central bank is ready to hike further on accelerating inflation. The next meeting on the key rate will be held on 30 January 2015. Unchanged in Hungary and the Czech republic next week Our call for rate decisions in both the Czech Republic and Hungary is for unchanged decisions next week. It is also the consensus expectation. While we expect both central banks to stay on hold, the pressure on them to ease monetary policy further is increasing. Economist Vladimir Miklashevsky +358 10 546 7522 vlmi@danskebank.com Analyst Stanislava Pravdová +45 45 12 80 71 spra@danskebank.dk Important disclosures and certifications are contained from page 7 of this report. www.danskeresearch.com
The Czech central bank is perhaps in a somewhat easier position as the floor on EUR/CZK introduced in November last year clearly helped to avoid deflation. However, inflation is clearly increasing less than the Czech central bank (CNB) expects. Even though further easing is becoming more warranted, we do not expect the CNB to lift the floor next year. That said, we expect the CNB to acknowledge that inflation is rising less than expected, hence the need for weaker CZK increases. We believe that the CNB will use verbal intervention to keep the CZK closer to 28.0 against the EUR. The Hungarian central bank (MNB) has been fairly neutral recently. The MNB continues to say that Hungary needs to maintain loose monetary policy for a sustained period of time, but on the other hand it doesn t indicate the possibility of further easing. However, as deflation in Hungary deepens, we cannot any longer rule out that the MNB will have to cut interest rates further going into next year. Our inflation models currently indicate that if the Hungarian central bank does not cut interest rates and ease monetary policy further, deflation will deepen over 1% early next year. 2 11 December 2014 www.danskeresearch.com
Calendar EMEA Data and Events in Week 51 Monday, December 15, 2014 Period Danske Bank Consensus Previous RUB - Industrial production (15-16 Dec) y/y Nov 1.1% 2.9% TRY 9:00 Unemployment rate % Sep 10.1% CZK 10:00 Current account CZk bn. Oct -3.50-21.05 PLN 14:00 Trade balance EUR mil Oct 255 614 PLN 14:00 CPI y/y Nov -0.7% -0.5% -0.6% PLN 14:00 Current account Euro mil Oct -290-235 Tuesday, December 16, 2014 Period Danske Bank Consensus Previous CZK 9:00 PPI y/y Nov -1.3% -1.3% -0.3% HUF 14:00 Central Bank meeting (rate decision) % 2.10% 2.10% 2.10% PLN 14:00 Wages y/y Nov 3.7% 3.6% 3.8% PLN 14:00 Employment y/y Nov 0.8% 0.8% 0.8% Wednesday, December 17, 2014 Period Danske Bank Consensus Previous RUB - PPI (17-18 Dec) y/y Nov 6.5% 5.1% CZK 13:00 Monetary policy meeting % 5% 5% 5% PLN 14:00 Construction prodiuction y/y Nov -3.5% -1.0% RUB 14:00 Real wages y/y Nov % 0.3% RUB 14:00 Retail sales y/y Nov 1.1% 1.7% RUB 14:00 Unemployment % Nov 5.2% 5.1% RUB 14:00 Disposable income y/y Nov 1.0% 2.1% PLN 14:00 Industrial production y/y Nov 3.4% 1.0% 1.6% PLN 14:00 Producer prices y/y Nov -1.2% -1.2% -1.2% Thursday, December 18, 2014 Period Danske Bank Consensus Previous ZAR 10:30 Producer prices y/y Nov 6.5% 6.7% PLN 14:00 Polish central bank releases Minutes Friday, December 19, 2014 Period Danske Bank Consensus Previous Note: The editors do not guarantee the accuracy of the figures, hours or dates stated above All release times are CET Source: Danske Bank Markets 3 11 December 2014 www.danskeresearch.com
Com EMEA Weekly EMEA FX scorecard overview Score PLN Score HUF EMEA FX scorecard outline - 0.5-0.2 All scores are computed on a scale from +5 to -5. A score is then derived by combining the different sub-scores. - - : calculates the growth momentum in different monthly macro indicators. Score CZK - - 0.1 Score TRY - - 0.1 : calculates the momentum in different volatility measures, short- and longer-term moving averages and the level of the relative strength index. : calculates the momentum in local three-month rates, carryto-risk, spread versus EUR or USD three-month rates and spread versus peers. Score ZAR - - Score ILS 0.1 Score RON - - Score total -0.1 : consists of a global growth score based on leading global indicators, a liquidity score based on G3 real rates and a sentiment score based on performance in global equity markets and traditional funding currencies. : calculates whether currencies are over/undervalued compared with the long-term trend in the real effective exchange rate (REER). The trend is adjusted for external imbalances, i.e. an imbalance-adjusted REER. The scores are calibrated to reflect the short-term impact of the valuation on FX. - -0.3-0.1 - - 4 11 December 2014 www.danskeresearch.com
Currency forecasts, EMEA Currency forecasts, EMEA USD PLN HUF CZK LTL RON BGN TRY RUB UAH ZAR ILS Dec 11. 2014 Source: Bloomberg, Danske Bank Markets EUR USD SEK NOK DKK Actual 1.25-750 722 597 +3m 1.22-762 713 610 +6m 1.20-767 708 620 +12m 1.23-732 667 605 Actual 4.17 3.35 224 215 178 +3m 4.25 3.48 219 205 175 +6m 4.26 3.55 216 200 175 +12m 4.28 3.48 210 192 174 Actual 308 247 3.03 2.92 2.42 +3m 300 246 3.10 2.90 2.48 +6m 300 250 3.07 2.83 2.48 +12m 305 248 2.95 2.69 2.44 Actual 27.6 22.2 33.8 32.6 26.9 +3m 28.0 23.0 33.2 31.1 26.6 +6m 28.0 23.3 32.9 30.4 26.6 +12m 28.0 22.8 32.1 29.3 26.6 Actual 3.45 2.77 270 260 215 +3m 3.45 2.83 270 252 216 +6m 3.45 2.88 267 246 216 +12m 3.45 2.80 261 238 216 Actual 4.45 3.58 210 202 167 +3m 4.40 3.61 211 198 169 +6m 4.40 3.67 209 193 169 +12m 4.40 3.58 205 186 169 Actual 1.96 1.57 478 460 380 +3m 1.96 1.60 476 445 381 +6m 1.96 1.63 470 435 380 +12m 1.96 1.59 460 419 380 Actual 2.82 2.26 332 320 264 +3m 2.72 2.23 342 320 274 +6m 2.71 2.26 339 314 275 +12m 2.89 2.35 311 284 257 Actual 68.78 55.3 13.6 13.1 10.8 +3m 59.8 49.0 15.6 14.6 12.4 +6m 61.2 51.0 1 13.9 12.2 +12m 62.7 51.0 14.3 13.1 11.9 Actual 19.54 15.70 47.8 46.1 38.1 +3m 20.74 17.00 44.8 41.9 35.9 +6m 24.00 20 38.3 35.4 31.0 +12m 24.60 20 36.6 33.3 30.2 Actual 14.30 11.49 65.4 6 52.1 +3m 12.99 10.65 71.6 67.0 57.3 +6m 13.08 10.90 70.3 6 56.9 +12m 14.08 11.45 63.9 58.2 52.8 Actual 4.89 3.93 191.0 184.0 152.1 +3m 4.76 3.90 195.5 182.8 156.4 +6m 4.68 3.90 196.6 181.6 159.0 +12m 4.74 3.85 190.1 173.2 157.1 5 11 December 2014 www.danskeresearch.com
Emerging markets contacts Emerging Markets Research Lars Christensen +45 45 12 85 30 larch@danskebank.dk Flemming Jegbjærg Nielsen +45 45 12 85 35 flemm@danskebank.dk Stanislava Pravdová-Nielsen +45 45 12 80 71 spra@danskebank.dk Vladimir Miklashevsky +358 10 546 7522 vladimir.miklashevsky@danskebank.com Rokas Grajauskas +370 5 215 6231 rgra@danskebank.lt Retail SME, FX Stig Hansen +45 45 14 60 86 sh@danskebank.dk Trading FX, Fixed Income, Danske Bank Markets Frank Sandbæk Vig +45 45 14 67 96 fsv@danskebank.dk Perttu Tuomi +358 10 513 8738 perttu.tuomi@danskebank.com Danske Bank Poland, Warsaw Maciej Semeniuk +48 22 33 77 114 msem@pl.danskebank.com Bartłomiej Dzieniecki +48 22 33 77 112 bdz@pl.danskebank.com Danske Bank Markets Baltics Martins Strazds +371 6707 2245 martins.strazds@danskebank.com Giedre Geciauskiene +370 5215 6180 giedre.geciauskiene@danskebank.com Rainer Änilane +372 675 2471 rainer.anilane@danskebank.com ZAO Danske Bank, St. Petersburg Treasury Department Maria Lenina Rautonen +7 921 797 57 80 lenina.rautonen@danskebank.ru Vladimir Biserov +7 812 332 73 04 vladimir.biserov@danskebank.ru Irina Voronova +7 812 332 73 04 irina.voronova@danskebank.ru All emerging markets research is available on Bloomberg DMEM 6 11 December 2014 www.danskeresearch.com
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