Daily Overview of Global Markets & the SEE Region (Monday, 22 July, 2019)
WORLD ECONOMIC & MARKET DEVELOPMENTS
GLOBAL MARKETS: Market participants scaled back expectations for a 50bps rate cut at the 30-31 FOMC meeting in reaction to a Wall Street Journal report suggesting that Fed officials are inclined for a 25bps rate cut at the upcoming meeting as well as clarifications by a New York Fed spokeswoman that New Fed President John Williams’s latest comments over quick and aggressive Fed action were not about a potential rate move at this month’s meeting. US Treasury yields rose, particularly at the front end of the curve, while Bund yields also moved north, albeit at a lesser extent. In FX markets, the USD gained some ground against most of its currency peers supported by reduced expectations for an aggressive 50bps Fed rate cut later this month and safe-haven flows amid heightened Middle East tensions following Iran’s seizure of a British tanker. Looking at this week’s calendar, the main event is the ECB monetary policy meeting (Thursday) with market odds of a 10bps rate cut surpassing 50% today for the first time. The result of the Tory leadership contest will be announced tomorrow (Tuesday, 23 July).
GREECE: The programmatic statements of the new government started on Saturday and are scheduled to be completed this afternoon with the vote of confidence. Among others, the PM Kyriakos Mitsotakis stated that the corporate tax will be reduced to 24% as of 2019 from 28% currently and to 20% in 2020 while the tax on dividends will be halved to 5%. Moreover, the property tax ENFIA will be reduced for all property owners. In spite of any policy changes, Kyriakos Mitsotakis stressed that the 2020 budget will not put at risk the fiscal targets agreed for 2019 and 2020. In other news, according to the Bank of Greece, in the January-May 2019 period, the current account showed a deficit of €4.8 billion, up by €124 million YoY.
SOUTH EASTERN EUROPE
CESEE MACRO & MARKET DEVELOPMENTS: According to official data released on Friday by the National Bank of Bulgaria (BNB), the current account (CA) posted a EUR328.6mn surplus in May compared to a marginal deficit of EUR2.9mn in the same month of the previous year. The cumulative surplus in Jan-May amounted to EUR1.0bn compared to a deficit of EUR 75.6mn in the same period of 2018. The CA balance improvement in May alone was backed by ameliorated figures across all components. On the contrary, Serbia’s CA posted a deficit which widened by 41.3%YoY to EUR 1.3bn during January-May. The cumulative deficit for the first five months of 2019 accounted for 5.7% of the projected GDP while in May alone, the CA posted a deficit of EUR124.2mn against a EUR 32mn surplus in the same month a year ago. The key driver of the posted deficit remains the persistently high imports growth, broadly fueled on strong domestic demand. Looking at this week’s calendar ahead, it is rather empty, with the most important event being the Romanian Central Bank Meeting on Tuesday where no changes are anticipated and the Key interest Policy Rate (KPR) will most probably remain stable at 2.50%.
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