Bernanke provides short-lived relief; regional PMIs deteriorate further

CEE currencies calmed down somewhat ahead of Bernankes speech, but this provided only a short-lived relief. The week ahead is going to be pretty busy in terms of European issues and domestic fundamentals are hardly going to provide any breathing space. Last week the data showed that Polish economy slowed surprisingly sharply in the second quarter while the Hungary and the Czech Republic are already in recession.

Furthermore, today in the morning, the regional PMIs have deteriorated further. The Polish PMI fell to 48.3 - the second lowest figure in 35 months. What is even more important, the output sub-index (the best leading sub-index for the Polish industrial output) sank to a 38 month low. Putting it together with disappointing GDP data, we now believe that the NBP is about to cut interest rates by 25 bps in November.

Beside that, the Czech PMI also fell further below 50 (to 48.7) driven mainly by fall in new export orders. These are declining for the tenth month in a row and as a key component of our Czech leading indicator they paint a gloomy 3-5 month outlook. That is why we are more convinced the CNB is also getting ready for further easing during the autumn.