CEE Macroeconomic and Fixed Income Research

Analysts’ Views:

HU Rates: The central bank kept the base rate at 2.1% in-line with our forecast and the earlier indication of vice-governor Balog. We still maintain our expectation that there will be no more rate cuts but no hikes as well. The current level may be kept until end-2015.

PL Macro: Retail sales came in at 2.3% y/y in October, marking slight acceleration in comparison to previous month. The positive growth dynamics is driven by favorable labor market conditions, that are reflected in dropping unemployment rate to 11.3% in October (from 11.5% in previous month). In our view growth dynamics remains meager, yet in line with market expectations, bringing nothing new to view on stability of policy rate at the next MPC meeting so there was no major reaction on the bond market and yields should remain low and stable (our point estimate for 10Y is 2.4% at the end of 1Q15).

RO Rates: A NBR’s official said yesterday that the central bank still has room to cut the key rate in the coming meetings. Mr. Daianu added that NBR’s decision to avoid a 50bp key rate cut at the last monetary policy meeting was justified by the need to leave more room for additional easing in the future. The next MPC is going to be held on January 7th 2015 and a fresh cut in the key rate of 25bp is not completely ruled out by us. We also expect further cuts in the reserve requirement ratios for both FX and RON liabilities.

Traders’ Comments:

CEE Fixed Income: Two key macro figures came out from US yesterday; 3Q GDP and later on consumer confidence. While reaction to better than expected GDP figure (printing 3.9% vs exp. 3.3%) was muted the miss in consumer confidence (printing 88.7 vs exp. 96) resulted in 10Y US yields trending lower to 2.25% from 2.30%. In Europe, German bunds also strengthened with 10Y yield reaching 0.748% just shy from the lows set in October 16th of 0.715%. The move provided support to CEE yields with POLGBs outperforming in local currency and Romanian EUR bonds outperforming in the Eurobond space. The move in POLGBs coincided with strong performance of the Zloty (EURPLN traded -0.60% yesterday) setting new resistance level of 4.2000 – 2050. We expect current strong level of the zloty to hold at least until the next NBP and ECB meetings. In global data today we will see IJC and personal income/spending from the US with no significant data releases from CEE.”.