CEE: Closer to the election, more pressure on EM - ING

Once again the calendar has little to offer today except consumer confidence in the Czech Republic. However, the main driver remains the global story, which adds volatility to the entire emerging markets (EM) space. Yesterday the market again came under pressure and with today's focus on PMI data in Europe and the US, the markets may see more negative news and reasons for further weakness in the Central and Eastern Europe (CEE) region, ING's Frantisek Taborsky notes.

More reasons for further CEE weakness

"The main focus will be on Hungary today which was closed yesterday for a local holiday. Rates had no chance to react but EUR/HUF is flirting with 403 levels in the meantime, a new local high. Today we will watch rates opening closely. The market has priced out almost all rate cuts, but we still see two cuts priced in for the second half of next year that may be priced out today as well, and if EUR/HUF continues to head higher, it would not be a surprise if the market starts to increase the odds for some central bank action."

"PLN also came under pressure yesterday with the weakest levels since June. The last few days have brought some negative numbers from the Polish economy, which has frontloaded the National Bank of Poland (NBP) pricing of rate cuts. After some time, pricing has returned to the dovish side and we see the first cut priced for February next year, while our economists expect May."

"At the same time, the market seems to be unwinding long-term PLN positions ahead of the US election and NBP cuts. Clearly, sentiment around the zloty is changing to the negative side. The CZK thus remains the only currency in the region without major losses and has outperformed the region in recent days and remains our currency of choice, while the rest of the region may see further losses at least until the outcome of the US election."