CEE Macroeconomic and Fixed Income Research

Chart of the day:

CEE FX: Since Ukrainian-Russian tensions intensified once again, CEE currencies depreciated. Deprecation in Hungary can be explained by most recent policies pursued by the government such as Mortgage FX relief program while in Poland & Czech Republic, country specific reasons for the depreciation is less evident. Interestingly enough, the RON has managed to outperform other CEE currencies including safe heaven Czech Koruna. This however, could be attributed to the “manage” approach pursued by the Romanian National Bank in keeping the currency stable.

Analysts’ Views:

RS rates: At today's MPC meeting, we expect the NBS to remain on hold and keep the key rate at 8.50% amid increased FX volatility, growing fiscal uncertainties and elevated turbulence on international markets (geopolitical risks). Looking ahead, the comfortable inflation outlook provides room for additional easing up to YE, but we do not expect any changes before late- September, when we should see more details on the fiscal front (budget revision, IMF report and presentation of consolidation program). For now, we maintain our YE rate forecast at 8%.

HU Macro: Industrial output rose by 11.3 % y/y in June, while the m/m index also increased by 1.8%. The CSO also revised the May yearly figure upwards (from 9.6% to 10.1%). The significant growth can be explained by favorable weather (food industry), and manufacturing (especially the automotive sector). The investments at the beginning of the year also had a positive impact on production. Although we expect that the growth in the industry will slow down in 2H14, we see upside risks to our current 7% year-average forecast. Market forecasts are unaffected by the release.

CZ Macro: After an unexpectedly weak reading in May, industrial production coming in at 8.1% y/y in June confirmed the fairly good shape of the Czech industrial sector. Although the growth of industrial output will probably slow down during 2H14 as a result of the worsening outlook for the German manufacturing, the persistently strong inflow of new foreign orders (19.1% y/y in June) provides hope that industry will remain one of the main drivers of GDP growth. As June's industrial reading was in line with expectations, we keep our forecast for 10Y yields at 1.67% at end-2014.

Traders’ comments: Following disappointing GDP data from Italy the risk off moment was reinstated with German 10 yields trading down to 1.09% and German 2 year yield dropping below 0 this morning, first time since May 2013. Today, ECB meeting will remain the focus of the day.