March retail sales point to strong consumption in Hungary

Next Report will be published on Monday 9th of May 2016

Hungarian retail sales rose by 5.5% Y/Y in March slightly down from the 6.7% Y/Y in February (according to calendar adjusted data - the volume growth was 4.2% y/y). The main driver of the growth was the non-food products, which were up by 7.6% Y/Y. The food sales were up by 1.9% Y/Y, while the fuel consumption rose by 5% Y/Y. The first quarter retail sales figures confirms our view that the households consumption fuelled by the net real wage growth boosts the economy and it may remain one of the main components of GDP growth in the following quarters as well, because the relative level of the households consumption is still well below the equilibrium level compared to the real income.

The main question is that the quite strong domestic consumption pushes up the inflation in the following months or not. The headline figure is likely to remain in negative territory till August – the bottom might be in July around -0.8% Y/Y – mainly due to base effect, VAT cut and low energy prices. The April CPI might remain around the March level of -0.2% Y/Y, so we have to focus on tradable products and market services inflation and on the core inflation adjusted by the tax changes to have a clearer picture about inflationary orbit.

It is important that the NBH modified its stance of communication in the last one week and they try to cool the rate cut expectations. The relatively strong consumption supports the slightly more hawkish attitude of the NBH, so we maintain our view that the Monetary Council may moderate the base rate by ‘just’ 15bp in May, which might be followed by maximum one more cut in June.

The yield curve was pushed up substantially in the last days and also steepened slightly, the long and of the curve moved up by around 40bp while the short-end moved only by 20-30bp. This reaction of the market might be because of the end of the self-financing program (the banks extreme demand for bonds moderates), the loosening fiscal policy in 2017 and the possible failing rating upgrade of Hungarian debt. We still see rather sellers on the market, but we think that between 3.4% and 3.6% in case of 10-year bond – it was the peak in December and January) buyers may return on the market. Also in case of 3 and 5 years paper we see roughly 20bp upside potentials, which might be followed with some range trading in the following weeks.

Currencies		% chng
EUR/CZK	27.02	0.0
EUR/HUF	311.9	0.3
EUR/PLN	4.39	0.3
EUR/USD	1.15	-0.3
EUR/CHF	1.10	-0.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FRA 3x6	%	bps chng
CZK	0.26	-2
HUF	0.90	3
PLN	1.64	1
EUR	-0.26	0

 

 

 

 

 

 

 

 

 

 

 

 

GB	%	bps chng
Czech Rep. 10Y	0.46	-3
Hungary 10Y	3.39	0
Poland 10Y	3.10	2
Slovakia 10Y	0.85	-1

 

 

 

 

 

 

 

 

 

 

 

 

CDS 5Y	%	bps chng
Czech Rep.	41	0
Hungary	146	2
Poland	85	0
Slovakia	42	0