o-forex: Czech politics are once again in the spotlight as the risk of more political turmoil increased significantly

In a speech to the South African Parliament yesterday afternoon, the Finance Minister Pravin Gordhan said that the economic recovery will be slow and this year’s budget deficit would certainly exceed the 3.8% of GDP that the Treasury had previously forecast. Given the much lower tax revenues due to the sharp economic downturn, along with no spending cuts to reduce government expenditure, it is very likely that the budget deficit may greatly exceed the previous forecast.

Czech politics are once again in the spotlight as the risk of more political turmoil increased significantly. Following the collapse of the centre-right minority government at the end of March during the Czech EU Presidency, the date for the early elections, initially set for 9-10 October, was thrown into doubt after the constitutional court received a complaint from one of the independent deputies over the early elections.

Today will be busy in terms of economic data in EMEA regions. A lot of focus will be on the South African current account deficit data for Q2. It is expected that lower imports due to lower domestic demand should narrow the current account deficit in Q2 compared to Q1. We expect Turkish inflation for August, due for release in the afternoon, to inch up slightly. Figures for Latvian industrial production in July are due today: we forecast -18.5%, unchanged from June.

Most EMEA currencies remained soft on Wednesday as risk aversion took control of financial markets, triggered by the slide in US and Asian stock markets overnight. Although today will be eventful in EMEA regions, and, for instance, the ZAR could gain ground on current account figures, it is likely that EMEA currencies will to a large extent be driven by risk sentiment.

Demand for the Czech 10-year bonds in the bond auction held yesterday was three times stronger than the offer. This indicates that the political turmoil has so far been ignored by the markets, though the political crisis and budget worries could put the Czech bond market under pressure going forward.