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CEEMEA Economic Update (June 11, 2025)

US-China Trade Talks

• Positive momentum continues with frameworks agreed in Geneva; rare earths resolution expected if leaders align.

Hungary

• Raises 2025 budget deficit forecast to HUF 4.774tn due to weak economy.
• Increased reliance on foreign currency financing (HUF 1.558tn) to support fiscal gaps.
• Broader reliance on foreign currencies (HUF 2.833tn) adds to vulnerabilities amid EU financing delays and wage pressures.

Czech Republic

• Sticky core inflation: Core CPI rose by 0.2 pp YoY to 2.8% YoY amid strong non-tradable price pressures. CNB unlikely to continue easing.

South Africa

• ZAR volatility: Jitters around foreign policy risks (FATF, BRICS) noted. FX curve steepening reflects expectations of depreciation.

Market Views & Key Insights

• Hawkish monetary outlook across CEEMEA driven by inflation/yield dynamics:
  • Shorter-dated yield curves (e.g., HUF, PLN, CZK) indicate value chasing despite sticky inflation.
  • HUF and CZK show carry trade interest with low rates and medium-term policy hikes anticipated.
  • ILs carry potential for carry trade given divergent Central Bank stances and market conditions.

Investment Implications

• Sovereign GDP linkage to FX and local bond strategies across most CEEMEA markets shows potential for local curve trades or FX carry (ILS/RON/HUF yield subsidy attractive for tactical use).
• Corporate credit risks noted in SA via oil price & SA default trajectory; East Africa bond trades supported by regional growth/policy shifts.

Charts Included

• See Appendix for visuals:
  • Yield curves (ILS, ZAR, HUF, CZK, PLN, TRY)
  • Basis swaps (ZAR, ILS, CZK)
  • Trade ideas (18+ specific positions)
  • Government cash/manufacturing deficit visualizations (HUF)