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Central European Daily

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Successful Polish 2−year auction

Thu, Jan 8 2009, 08:19 GMT
by KBC Market Research Desk

KBC Bank

Headlines

Currencies: Profit-taking on CEE currencies due to fragile global sentiment
Fixed Income: Successful Polish 2-year auction

Currencies

The Hungarian forint continued the appreciation trend in the morning and shallow liquidity allowed the Hungarian currency to climb to as high as EUR/HUF 263.50. The positive tone however disappeared later in the day and disappointing US employment data brought back concerns about a deeper global recession. This was not really supportive for emerging market currencies and the forint followed the peers again and weakened 2% during the afternoon to this year’s record low of 270.00 (offer). This level could be a strong resistance and therefore a rebound is also possible from here. This afternoon, at 1700CET, the Finance Ministry will publish the December preliminary budget data, where the Ministry expects Ft100bn surplus. This is a key data as the IMF program set a target for the 4th quarter primary balance surplus, therefore market may look closely the outcome.

The Polish zloty weakened significantly from month long highs against the euro (EUR/PLN 3.88) amid softer global sentiment and fears that the regional economy might suffer from shortages in supply of natural gas transferred by Russia via Ukraine. The extremely soft data from the US labor market undermined confidence even more and while we could see the EUR/PLN encounter resistance in the 4.02 area, the zloty might attempt to return to the recent range of 4.08-4.20 in the run up to the weekend if equity markets fail to regain their composure and the gas crisis continues. On the data front, the payrolls will be the focal point and could set sentiment in the market for the week to come.

The Czech koruna tracked the profit-taking in the region and weakened back to the 26.20 EUR/CZK areas. On the other hand, it is worth mentioning that the losses were not so severe as in the case of the neighboring Polish zloty. Today’s trade balance should come out slightly above the market consensus, especially thanks to the positive effect of declining oil prices. Nevertheless it might be ignored, as the main driver of the Czech FX market in the short term seems to be the risk attitude on global markets. We don’t expect to see better sentiment ahead of US payrolls.

Fixed income

Hungarian bond market corrected with the currency and the mid-part segment is now trading around 9.5%. There is not much difference from the currency market as the rate cut story cooled with the currency’s weakness in recent days and we may need some stability on the FX market first before investors would return to bonds.

The Polish bond curve continued to steepen in a bullish fashion on Wednesday. The 2Y primary auction was the highlight of the day helping to gauge the sentiment. The massive PLN 3.5 bn put on offer was enough to push short term bonds (in prices) ahead of the tender, but with supply at PLN 10.5 bn, the MF was able to sell 3.6 bn worth of bonds at an average yield some 10 bps below the secondary market levels. Gains in the Polish bond market have been profound over the last several weeks, and while in the longer term we remain positive for short maturities, the risk is rising for some profit taking, potentially inspired by a weaker zloty. If the currency keeps its composure, we should see the bond market remain in positive mode though.

Czech mid-term and long-term government bonds yesterday eased, in spite of falling stocks markets. Nevertheless the movement was not very significant. Today’s trade balance should be, according to our view, market neutral while more interesting will be tomorrow’s inflation data. We expect to see rather sideways trading today.

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Published on  Thu, Jan 8 2009, 08:32 GMT