• Home ::
• Fundamental ::
• Market View ::
• Central European Daily

Central European Daily

Polish auctions in focus today

Wed, Nov 12 2008, 08:49 GMT
by KBC Market Research Desk

KBC Bank  |  View company's profile

Vote:

8c9e8429-4c7e-47da-aae2-52b259dd811f

21

0

• Send
• Print
• Add To
• Rss

Headlines

Currencies: Stronger dollar and softer equities weigh down on the region
Fixed Income: Polish auctions in focus today

Currencies

`The Hungarian forint was relatively stable around 266-270/€ yesterday, despite equities dipping lower again and some emerging currencies weakening considerably. The good October inflation figure could have been of help, as inflation now really looks to fall to the 3% target next year. The October reading was 5.1% Y/Y, a tad better than our and consensus estimation for a 5.2-5.3% figure. The high interest rate may also help the currency as for example the recent PLN weakening had only a smaller impact on the forint. If the currency is able to stabilize, volatility could decrease somewhat and that could make the forint more attractive, but no short-term turnaround is expected.

The Czech koruna stayed under pressure of the negative regional sentiment. Besides the negative sentiment on the global stock markets and stronger US dollar also the Russian decision to leave some space for the rubles depreciation could have played a role. Today the equities may open higher according to futures, which may limit the space for further losses of the Czech koruna. From a technical point of view , the 25,65 EUR/CZK should be quite resilient barrier, difficult to break above.

The Polish zloty came under pressure from client orders in an illiquid market on Monday. The EUR/PLN pair inched past 3.70 at the end of trade and headed higher on Tuesday, with local markets closed for holiday. The stronger dollar and softer equity performance all point to limited upside potential for the EUR/PLN in the very short run. We could even see the PLN lose ground in an extension to this week’s move, particularly if the C/A deficit comes in softer than the already weak consensus of EUR 2.5 bn. However, current levels already seem attractive to buy into the PLN in case tentative signs appear that the sentiment might begin to improve. In the medium term the zloty should receive support from the rising interest rate spread and still relatively healthy fundamentals.

Fixed income

Higher yields and basically no activity was the picture in the bond market on Monday. Limited liquidity should return to the market today as all eyes turn to the switch tender today and the CPI numbers tomorrow. The auction will help gauge the sentiment in the market with two important benchmarks on offer (the 2Y OK0710 and the 5Y PS0414). Regarding inflation we are looking for a consensus-like reading but the risks are skewed to the downside, so in the end the release could be positive, particularly for shorter maturities. In the meantime the lagged impact of the weaker zloty might weigh on the sentiment.

The Hungarian bond yields rose by 20-30 bps, as foreign investors are waiting on the sidelines. This could be seen as a good sign after weeks of heavy selling that pushed up yields to the sky-high 12% level. Since the debt management agency decided to cancel all bond auctions until the year-end, occasional buyers have also difficulties with larger amounts, while many participants are cautious before the central bank meeting at the end of the month.

The Slovak central bank surprised the market yesterday as it cut its interest rates by 50 bps. The key repo rate is now at 3.25%, the same level as the ECB. We expected that the NBS would cut its rates at the regular meeting at the end of this month. This would have been in line with previous statements of some members of the Bank Board as they said in the past that rates would be aligned with those of euro zone at regular meetings. Should the ECB deliver a rate cut again in December (what we expect), the NBS will follow it in a short time. The Slovak koruna eased slightly after the decision and then stabilized below EUR/SKK 30.50. Today, the eco calendar contains October inflation data, but these are traditionally no market movers. The currency pair should further oscillate close to current levels.

Czech bonds yesterday profited from the global stock markets' fall. Yields fell along the whole yield curve by 6-10 basis points, nevertheless trading volumes remained far below the average. Today’s trading will be again dependent on global sentiment and Czech bonds will most probably follow its European counterparts.

• Download Full Central European Daily

Published on  Wed, Nov 12 2008, 08:59 GMT

Vote:

8c9e8429-4c7e-47da-aae2-52b259dd811f

21

0

• Send
• Print
• Add To
• Rss