CEE Macroeconomic and Fixed Income Research

Analysts’ View:

Looking Ahead in CEE This Week: Looking ahead this week, the macro release calendar looks somewhat bare but there will be two central bank meetings that could be interesting. We expect the MNB to cut the policy rate by 15 bps on Tuesday, but there is some likelihood of a 20 bp cut if the central bankers are worried about the forint getting too strong. In Turkey, the target rate should remain unchanged on Wednesday, but if the CBT is concerned about TRY weakness the upper boundary of the corridor might be increased.
In Poland, the latest NBP minutes will be released on Thursday, possibly shedding more light on how problematic the NBP sees the impact of the strong zloty on ongoing deflation. Based on the governor’s latest comments, the NBP is still largely comfortable with currency developments.

PL Macro: Industrial output, the PPI index and retail sales data are due this afternoon. We expect that growth of industry and retail sales accelerated in March to 6.7% y/y and 1.7%, respectively. Hence, the data should confirm robust economic growth in 1Q15. As the CSO revised growth for both 4Q15 and FY2015 upward and leading indicators also allow for a dose of optimism, we have decided to increase our growth forecast from 3.1% to 3.5% for this year. The higher growth rate should be supported by stronger private consumption; especially the labour market data support such a scenario (wage growth at 4.9% y/y in March was well above expectations and employment went up by 1.1% y/y). At the same time however, we have also revised our CPI forecast down from -0.3% to -0.6% for this year as deflation in 1Q15 was stronger than we initially anticipated. At the moment we sustain our market forecasts (year-end EURPLN at 4.04 and POLGB 10Y yield at 2.5%) as we do not expect any change in monetary policy until year-end. Morning comment of Chojna-Duch only confirms such scenario as she commented that improving economic outlook made the MPC confident about latest decision (50bp cut and the end of the cycle).

Traders’ Comments:

CEE Fixed income: The big news overnight was the Chinese decision to cut reserve requirements by 1 ppt but this failed to sooth fears in equity markets with the Hang Seng dropping 2% in Hong Kong at the time of writing, following on a 1.5% drop in the Dow Jones and a 2.5% fall in the DAX on Friday.
Chinese regulators also banned margin-trading businesses of brokers from using umbrella trusts and increased the supply of shares to short sellers but maybe it’s just a case of some people taking chips off the table after a liquidity driven frenzy. However, with the Bund yielding 0.5% there may also be real concerns that Greece will indeed shock markets by defaulting on its debt.
Mario Draghi was talking about entering “unchartered waters” this weekend whilst the Eurogroup Chairman, Jeroen Dijesslbloem, downplayed the impact of a Grexit this morning ahead of the Eurogroup meeting on April 24th. Taken together, the comments seem to portray a Eurozone that is bracing for a breakdown in negotiations. The performance of CEE fixed income spluttered and stuttered then came to a grinding halt just before the weekend and Romania’s attempt to re-tap the 6Y residual maturity bond DBN032 with a RON 200 m target may be a litmus test for local currency bond markets in our region today. The Slovak Republic is also scheduled to issue bonds today.