• York Investment & Finance

Global Markets Overview: Eastern Europe

By Julia Solecka, Analyst at the York IFS Global Market Telegraph

Hungary and Poland have blocked the EU’s historic €1.8trn budget while Turkey’s Treasury and Finance Minister has stepped down following criticism regarding the handling of the ongoing lira currency crisis.

European stock markets have endured a two-faced start to the month, originally climbing on news of a 90% effective covid-19 vaccine before slipping again amid worry about further economic damage as a result of new lockdowns across the continent. Airline and oil companies were among the top performers following Pfizer’s announcement, leading the Ruble to surge 2% against the dollar and the Russian MOEX index to climb 2.3%.[1] Romania’s BET and Croatia’s CROX (EUR) also followed a similar upward trajectory, ending the first 2 weeks of November up 4.4% and 6.6% respectively.[2]

With increasing worries about the need for further restrictions, Hungary has confirmed it will be the first EU member to receive a sample of the Russian Sputnik V Covid-19 vaccine, with clinical trials beginning as soon as December. The vaccine, claimed to be 92% effective from interim studies, comes at a time of increased restrictions within Hungary amid rising new cases, including a complete ban on movement between 8 pm and 5 am.[3] This comes alongside Slovakia’s mass testing that has found 57,500 new infections, highlighting new coronavirus hotspots within the country. Rapid antigen tests were used on 3.6m people between 31st October and 1st November, with a participation rate of 80-90% of the eligible population taking part. A further 2m people were tested the following weekend in the most affected regions, with the observed infection rate dropping from 1.47% to 0.62% between the two testing periods.[4]

The upcoming seven-year EU budget has been vetoed by Hungary and Poland in protest against a clause tying the funding with adherence to the rule of law in the bloc. First discussed in July and requiring unanimity for final approval, the €1.8trn budget, including a €750bn coronavirus recovery plan that many member states are in desperate need of, has been blocked until a decision can be made.[5] This comes as both member states steer further away from core EU values through a controversial ban on abortions in Poland, and the proposed ban of adoption by same-sex couples in Hungary.[6] The recent ruling, during what was marked as a “sad day for women’s rights”, would make abortions in cases of foetal defects unconstitutional. Around 98% of abortions in Poland (of which there were just 1,000 in 2019) are performed due to foetal defects[7], with many women travelling abroad for the procedure due to the country’s already strict laws. The near-total ban led to over 100,000 protestors taking to the streets of Warsaw in the largest demonstration held in the country since the fall of communism in 1989, with smaller protests held across 580 different cities and towns.[8] The government has since delayed the implementation of the ruling, though this has not done much to calm the anger of many nationals as protests throughout the country continue.[9]

Following months of criticism over his management of the Turkish economy and the ongoing currency crisis, Berat Albayrak, Erdogan’s son-in-law, has resigned from his position as Treasury and finance minister.[10] His replacement, Lufti Elvan, was warmly welcomed with the strongest rally the lira has seen in 2 years despite the clear challenges of a covid-19 beaten economy and a weak currency.[11] With a likely uphill battle against the Turkish president’s views on economics and high interest rates, Mr. Elvan has announced he aims to make his approach market-friendly and based on “transparency, predictability and accountability”.[12]

Azerbaijan and Armenia have signed a deal with Russia, seeking an end to the Nagorno-Karabakh conflict after six weeks of fighting and thousands killed.[13] The Nagorno-Karabakh region is officially recognised as a part of Azerbaijan, but with the majority of the population ethnically Armenian, it has been governed by a self-declared republic and backed by the Armenian government since the first ceasefire in 1994.[14] With continued outbursts of conflict since then, fighting most recently started in July at the international border, ending in early November with the signing of a trilateral peace deal assigning Russia as a peacekeeper for the truce.

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 12.1 in late November 2020.

[1] https://www.themoscowtimes.com/2020/11/09/russian-ruble-stocks-surge-on-vaccine-optimism-a71995 [2] https://markets.businessinsider.com/indices [3] https://www.ft.com/content/efbada95-c877-4200-ada8-0610bc7dbfa5 [4] https://www.ft.com/content/6d20007c-25ad-4d1a-b678-591acaa57df9 [5] https://www.bbc.co.uk/news/world-europe-54964858 [6] https://www.bbc.co.uk/news/world-europe-54902048 [7] https://www.theguardian.com/commentisfree/2020/nov/08/look-to-poland-for-lesson-in-how-protest-works-abortion [8] https://www.newyorker.com/news/our-columnists/the-abortion-protests-in-poland-are-starting-to-feel-like-a-revolution [9] https://www.theguardian.com/world/2020/nov/03/poland-stalls-abortion-ban-amid-nationwide-protests [10] https://www.ft.com/content/63687cfe-fedf-4bfc-aa6f-638e41c4e874 [11] https://www.ft.com/content/4f5f876b-931c-4977-9a27-7142bfd13ca8 [12] https://www.ft.com/content/92623787-cfde-450b-9912-6520ba6e2646 [13] https://www.ft.com/content/bfb04708-3f6c-4659-b6ed-9ec7b01e75f4 [14] https://www.bbc.co.uk/news/world-europe-54324772

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