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Central European Daily

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Czech PM: Budget deficit should reach CZK 150bn

Thu, Jul 2 2009, 08:58 GMT
by KBC Market Research Desk

KBC Bank

Headlines

Currencies: Zloty rallies and EUR/PLN tests the 4.35 level
Fixed Income: Czech PM: budget deficit should reach CZK 150bn

Czech Republic

The Czech koruna tracked partly the gains of the zloty and forint, which resulted in a successful attack of the EUR/CZK 25.85 support level yesterday. Hence, the pair broke below this important level and headed south reaching the intra-day and sixmonth low at 25.67. Interestingly, at the same time the market could read a comment coming form CNB’s governor Tuma, who said that the substantially weaker koruna (in year-on-year levels) helps the economy to fight the recession. In other words, the CNB does not think that the recent appreciation poses a risk for Czech exports.

Today, the koruna once again will focus on the key US figures, while it will watch zloty’s reaction to these figures. It is quite the same to assume that the koruna’s volatility will be lower compared to zloty’s movements.

The Czech fixed income closed yesterday’s session with mixed results despite much stronger local currency. The only local news was a comment coming from a new Czech PM Fiser, who said that the 2009 budget deficit will reach CZK 150bn, which is basically in line with our pessimistic expectations. Today, the koruna and US payrolls will be the two items to watch. Should the koruna be able to firm further the front end of the curve might move a bit down, since there is still room to price in August rate cut more aggressively.

Hungary

The Hungarian forint extended yesterday its impressive rebound. EUR/HUF dropped from 272 to 269 supported by a slight improvement in the manufacturing PMI in June. The Hungarian manufacturing sector continued to contract in June although at a slightly slowing pace as exports started to expand for the first time since September. The headline index rose from 45.4 to 45.8 after hitting an all-time low of 38.5 in January. Today, the domestic calendar is empty and therefore, all eyes will be on the ECB press conference and the US payrolls in the afternoon.

Yesterday, Hungary’s Finance Minister Peter Oszko said the government plans to issue a Eurobond by the end of September, but declined to comment on the size.

Poland

The Polish zloty posted very strong gains on Wednesday. After breaking below key 4.50 EUR/PLN, the pair fell off a cliff and touched 4.346. The driving force behind the gains was better sentiment towards emerging markets and risky assets. The zloty stayed clearly positive during the whole session despite some discouraging figures from the US in the afternoon. The domestic scene was more or less empty as markets widely ignored the second consecutive improvement in consumer sentiment. Regarding sentiment, it looks as if the Poles are less afraid of losing their jobs and thus more willing to spend in the near future.

Today, the main event is the outcome of the US payrolls report. Given that the zloty broke through key technical barriers, it may be difficult for the US figures to weaken the currency, even in the case of negative surprise.

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Published on  Thu, Jul 2 2009, 09:53 GMT