Czech and Polish PMI surged in June

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Regional assets digested Greek selective default well

Czech and Polish PMI surged in June

The Central European assets have digested Greek selective default well. While the exchange rates have hardly changed, the yields of government bonds slightly fell and the regional stock indices even strengthened. In our view, though, negative risks for regional assets have not disappeared yet. Today, for instance, all eyes are on the ECB which may feel legitimate to stop supporting the Greek banking sector (even though such a move would be extremely surprising). The principal risk event is scheduled for next Sunday when Greeks are expected to vote on bailout conditions submitted by Greek creditors.

As far as today’s regional PMIs are concerned, both Czech and Polish PMI improved significantly while the Hungarian index remained stable. After falling to a seven-month low in May, the Polish index surged in June and reached 54.3 points.

As concerns the Czech PMI, it hit a thirteen-month high in June. This confirmed that industry in general and manufacturing in particular remains the key driver of the Czech economic growth. Although all components of the index contributed positively to the June’s reading, development of the employment sub index was particularly encouraging as the latter strengthened at the fastest pace on record. On the other hand, although the labour market has improved markedly in the Czech Republic over the last couple of months, significant positive impact on real wage growth has still been absent. This has also been confirmed by details of the final estimate of the Czech GDP in the first quarter 2015 which unveils that while household’s disposable income increased by only 2 % Y/Y in nominal terms, the nominal GDP jumped up by 5.2% Y/Y.