CEE Macroeconomic and Fixed Income Research

Analysts’ Views:

PL Macro: We and markets will be closely watching the GDP breakdown.
Flash estimate of growth in 3Q surprised to the upside, although monthly indicators pointed to rather disappointing figure, and there is a question if the structure supports sustainability of recent dynamics. In our view, the biggest surprise lies in the investment part (will we see double digit growth?). Private consumption should post solid growth and net exports could have positive contribution to growth as well. So as long as figures keep looking good, the chances for rate cut goes down, thus we see the stable policy rate at 2.0% as most likely scenario in upcoming months. Yields keep dropping driven by expectations on broadening asset purchase in Eurozone, so we sustain our forecast of 10Y yield at 2.3% hoping that Draghi does not disappoint the markets.

HR Macro: Today CBS will publish 3Q GDP flash estimate with the figure expected to land at -0.6% y/y i.e. showing virtually no deviation compared to 1H14 activity. Details will be following later, though we see domestic demand continuing to weigh on the headline figure and net exports, mainly owing to suppressed imports side, working in the opposite direction. Our forecast for FY14 GDP stands at -0.7% implying we are not anticipating dramatic deviation from the current patter till the YE14. We expect no material effect to capital market forecasts.

SI Macro: We expect 3Q GDP figures revealing ongoing vivid growth momentum prolonging also in the 3Q with the pace remaining close to 1H14 2.5% y/y dynamics. Headline figure is seen receiving support from the ongoing robust exports momentum, further stabilizing private consumption pattern and still supportive investments tone. Looking forwards exports remain the pace setting component and outlook looks a bit more demanding, though still supportive. On the other hand domestic demand, especially on the private consumption side, is showing signs of further gradual stabilization amid more supportive labor market footprint. Correspondingly following the 1.1% contraction in 2013, GDP is seen expanding 2.2% in 2014.

Trader’s Comments: The indecisiveness of OPEC members in curtailing freefall of oil prices by cutting production led to the steepest one day fall in oil prices since 2011. Brent prices tumbled by USD 6.5 or 5.5% at closing. German bunds also continued their march to new lows in yields with the 10Y German benchmark trading below 0.7% for the first time pulling other European government bond markets such as France and Austria to fresh lows with the French 10 year bonds trading below 1%. US 10 year bonds also traded lower in yield, currently at 2.2% from as high as 2.4% this month.
Interestingly enough, global equity markets rallied with DAX just a short breath from 10,000 and the S&P closing on all-time highs. In CEE markets, HGBs outperformed together with Romanian local currency and Eurobonds. CEE FX in our region was relatively stable when compared to moves in Russian Ruble where we saw EURRUB level breaking 60 trading as high as 62 following the bloodbath in oil markets. It remains to be seen how such volatility will impact our CEE markets but up until now such concern is completely being brushed off by bond and FX in our region.