Forint uninspired by retail sales – waiting on referendum

Headlines

While the closure of the US market and Sunday’s Greek referendum should keep investors sidelined even in Central Europe there have been fresh macro data from the region. In the case of the Czech Republic they show that foreign trade surplus continued to expand even in May. As concerns the Hungarian retail sales figure (showing 5.2% Y/Y growth adjusted by working days) – it confirmed our view that the sector stabilized around 5% Y/Y increasing level, so the domestic consumption remains an important part of this year’s economic growth of Hungary. Mainly the non-food retail sales is accelerating (up from 5.6% Y/Y in March to 9.7% Y/Y in May), while food retail sales growth almost remained unchanged at 1.1% Y/Y, while fuel consumption is slowing from 9.3% Y/Y in April to 5.6% Y/Y in May.

The figures above caused no market reaction as especially EUR/HUF and HUF bond market is driven mainly by the Greece story. It is interesting that the two markets reacted differently on Greek news. While we see weakening of the HUF there is no sell-off on the bond market rather it had a side move in the last days. Looking ahead we don’t expect any substantial sell-off in the bond market. The reason is the strong demand coming from the local market (mainly banks) and the slightly decreasing issuance by Debt Management Agency. On the EUR/HUF market we see important resistance level between 315.3 and 316, which was able to stop the weakening this week several times. If it breaks that level, the next important resistance level is around 318. We think that a ‘NO’ vote on the weekend in Greece might be rather positive on HUF assets, so yield may rather drop by 20-30bp, while EUR/HUF may fell back to around 310, while a ‘NO’ result might rather indicate side moving bond yields and slightly weakening HUF.