CEE:
Disinflation continues across Central and Eastern Europe, opening up the possibility of central bank rate cuts. However, lower inflation does not necessarily mean faster rate cuts. The local story will increasingly create divergence across the region.
Commodities:
We have revised lower our oil forecasts for the latter part of the year. A more hawkish Federal Reserve, limited speculative appetite (given the uncertain outlook), robust Russian supply and rising Iranian supply all suggest that the market will not trade as high as initially expected.
FX:
The dollar downtrend is "on hold" as markets await key data to determine the new peak for Fed rates and the timing of rate cuts. EUR/USD may trade around or slightly below 1.10 in the third quarter as the US data story fails to turn clearly USDnegative, but medium-term undervaluation and a forecasted drop in US short-term rates suggest a climb to 1.15-1.18 in 4Q23/1Q24 remains possible.
Rates:
Market rates are feeling the pressure. Risk assets have been bought into, and inflation is not calming fast enough. Central banks are piling further pressure on them. The US 10yr Treasury yield won't look right until it hits 4% and can take out the prior high. The 10yr Bund yield should get back to 2.75%, at least, and can still look up, possibly to about 3%.
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