EME Macro/Strategy: Not much inflation relief in June

The June business and consumer surveys showed, on average, upside surprises in the services and retail sectors, continuing the recent trend of a broadening of the economic recovery. On the other hand, the performance of the industrial sector was patchy, signalling that the recovery here, in terms of the volumes of orders, has lost thrust, but there is still momentum in terms of pricing power. Inflation indicators signal sticky inflation at a brisk level in the near term, but not accelerating further. This is likely to push the central banks into some action in the coming quarters, too shallow to undermine the recovery in 2022E, in our view; while a genuinely restrictive monetary stance is looking plausible from 2023E, we believe. Given this backdrop, our FX models signal a continuing depreciating bias for the HUF, the RON and the TRY, while the sovereign bond yields are trading close to fair value, as long as the monetary policy strategy keeps this semi-dovish bias.