CEE Macroeconomic and Fixed Income Research

Analysts’ Views:

CEE Looking ahead this week: The macro calendar is pretty empty this week, with only the Turkish central bank holding its rate setting meeting on Thursday, which should bring no change in the policy rate. Apart from this event, only second-tier macro data are expected this week (Slovak and Croatian unemployment figures on Tuesday and Wednesday, Serbian current accout balance on Tuesday and also Serbian wage development on Friday) which will very likely not have an impact on markets. Markets in CEE may continue to be driven by global market developments; in this regard, the Euro Area PMI figures may be important as they may be good indicators as to what to expect from European growth in the near future. On Thursday and Friday, Hungarian markets will be closed due to a national holiday.

PL Macro: Industry expanded by 4.2% y/y in September, beating our expectations (3.2% y/y and 2.7% y/y respectively). The good figure was mostly the outcome of statistical effects, however, as fundamentally industry remains weak. The positive surprise may cool down expectations for a big rate cut in November (50 bps) although there is space for such a move. All in all, the slowing economy and deflationary pressure support a low level of yields and we see downward risks to our forecast for the POLGB 10Y of 3% at the end of the year.

Traders’ Comments

CEE Fixed Income: The question we are all asking ourselves is, was it just a dead cat bounce? US data was strong going into the end of last week (jobless claims fell to the lowest level since April 2000, whilst Industrial Production, Housing and Consumer Confidence data also topped expectations) and equities clawed back some of the losses they had incurred earlier in the week. That on its own doesn’t seem surprising. It’s the gyrations in the UST 10y that are hard to explain and theories abound. The yield is back up to where it was before the wild moves from 15th October which at face value means we are back to where we started and fundamentals have reasserted themselves but US CPI is due out on Wednesday and this announcement has the potential to throw another spanner into the works. In fact, it may not even be US data that dictate global investor sentiment. Weak Eurozone data could put pressure back onto the periphery which put in a decent recovery on Friday, something which has a direct impact on CEE fixed income. Nerves are frayed and there are plenty of headline strories outlining the amount of leverage in the markets now. CEE FX mirrored the volatility of the spreads between the Eurozone core and the Eurozone periphery. Yields on HGBs dropped and the POLGB yield curve bull flattened in spite of stronger than expected IP data but in CEE cash corporates we actually saw more inquiries for bids from investors to the trading desk. We may see a cautious tone to the markets this week seeing as the results of the ECB‘s Comprehensive Assessment are due on October 26th.