Economics Research The UniCredit Weekly Focus

26 September 2013 Economics & FI/FX ResearchWeekly FocusCEE: Central banks moved centre stageWith only a few but promising data releases in Central and Eastern Europe (economic andindustrial sentiment up the Czech Republic and Turkey) underpinning the catch-up process ofthe region, central bank meetings took center stage this week. In line with expectations, theNational Bank of Hungary delivered another 20bp rate cut, bringing the policy rate down to3.60% in an effort to shore up the recovery and contain the interest bill of the government.While the risk of deeper cuts to 3% has increased, we maintain our call for cuts down to3.50% by the end of the year. Having reached the zero level of the key rate already in late 2012,the focus of Czech monetary policy is on FX interventions. But the proposal to start interventionshas again failed to win a majority in the Board. Former statements of some central bankerssuggest that they have been reluctant to use such a controversial policy tool unless theyobserve an acute risk of deflation. Overall however, the CNB remained dovish, thus leavingthe door open for FX interventions further down the road.More mixed US dataThere were only a few important data releases outside Europe. While Asian data were promisingon balance (Chinese Markit/HSBC PMI, Japanese SME confidence, Taiwanese export orders –all were up), US numbers were pretty mixed, hinting at a somewhat softer 3Q13 quarterfollowing an unrevised spring quarter (+2.5% qoq). This week’s business surveys (the relativelynew nationwide Markit manufacturing PMI as well as the Empire State and Philly Fed surveyswere down, as will also be the case for next week’s ISM figures (see our preview section). Butlevels are still solid-to-strong, underpinning our view that the US recovery will gain furthertraction down the road – once the debt ceiling discussion will be completed, which is currentlyweighing on sentiment and activity. The recent decline in US consumer confidence fits intothis pattern, although the level is still near the highest level since late-2007. On a positivenote, durable goods orders and shipments (especially core capital goods) as well new homesales substantially improved versus the disapprovingly strong pre-month drops.Nikolaus Keis, Economist(UniCredit Bank)+49 89 378-12560nikolaus.keis@unicredit.deUniCredit Research page 4 See last pages for disclaimer.