We witnessed only timid signs of better sentiment in the last few weeks. However, having a strong belief in macroeconomic mechanisms and the specifics of business cycle, we wanted to see something more in them than just mere green shoots. It seems August is going to be the month marking the beginning of a streak of solid domestic data. We got assured by better PMI reading (above 50) and we think the real data will follow. It is also worth noticing that when economy is at inflection point, the volatility of forecast rises, opening doors for (in our opinion positive) surprises. Therefore not only the data can be better, but also surprise index can go upwards as market consensus is still conservative (analysts have tendency to err on the side of pessimism at the bottoms). All this considered and along with a turnaround in inflationary processes (both PPI and CPI are set to be marching upwards) a lot of space for expectations on monetary tightening in 2014 is made. It is too soon to speculate on the timing and scale, though. However, it is good time to ride on market momentum. Bad times for bonds are coming.
