Key events in EMEA and Latam next week

Despite supportive impact of domestic demand compression, exchange rate developments point to continuing challenges for the inflation outlook.

After recent TRY weakness, upside risks on the outlook has been intensifying. Accordingly, lira OIS rates currently price some upward rate adjustment until the year end. While raising effective cost of funding, the central bank will likely make no imminent policy rate change in the near term including August MPC and prefer to see the impact of ongoing tightening via liquidity provisioning.

Russian industrial output in July was under pressure of adverse calendar effect (extra day-off due to the vote on the constitution) and the recent weakness in the intermediary and investment-driven sectors evident already in June.

Meanwhile, the pick-up in budget spending from 26% YoY in 1H20 to 37% YoY in July, mainly thanks to the 46% YoY spike in state support to the business, can result in industrial output actually outperforming our below-consensus forecast of -11.8% YoY. The retail trade should continue recovery amid state support to income and lack of international travel.

At the same time, the likely deterioration in the income trend remains a challenge, likely limiting the pace of recovery in 2H20 even after a relatively shallow 8.5% YoY GDP drop in 2Q20.

This week we’ll get a few real economy figures for July.

Due to less favourable calendar effects than in the previous month, we should see negative YoY dynamics across the board. Still, the recovery continues and leading indicators, such as PMI suggest we may see some positive surprises. While Covid-19 cases are on the rise, Poland has not re-introduced nearly as harsh measures as during the full lockdown in 2Q.