Headlines
Currencies: Polish zloty hard hit
Fixed Income: Hungary has new PM nominee
Czech Republic
The Czech koruna followed the Polish and the forint lower, as rising risk aversion brought the negative sentiment back to regional Forex markets at the end of last week. Ongoing political uncertainty plus Thursday’s outcome of the CNB meeting had just a minor impact on domestic trading.
Regarding the political environment, the scenario of early elections seems to become more likely. Both main parties, ODS and ČSSD, preliminarily agreed on early elections this fall, but the question remains whether it will be in September or October. It is also unclear whether a political government or a technocratic government will govern the country until the elections.
As concerns today, the domestic calendar is completely empty, so the koruna will become the hostage of global developments and so the negative sentiment might remain in place for some time.
The Czech yield curve steepened a bit, as stronger market activity led to an outperformance of short end of the curve. The market digested the central bank meeting, which brought a more dovish stance and thus supported the front end of the curve The domestic calendar is completely empty so the Czech fixed market will probably focus on Thursday’s ECB meeting. Bonds with longer maturities will suffer more losses and asset swaps will widen further, if risk aversion increases further on global markets.
| Currencies | Close | change |
| EUR/CZK | 27.48 | 1.4% |
| EUR/HUF | 308.0 | 2.2% |
| EUR/PLN | 4.725 | 3.3% |
| USD/PLN | 3.407 | 0.0% |
| EUR/SKK | 30.13 | 0.0% |
| EUR/USD | 1.319 | -2.8% |
| USD/JPY | 96.1 | -1.8% |
Poland
The Polish zloty strongly underperformed the whole region on Friday. It seems that the zloty managed to ignore the regional political turmoil only as long as the global equities stayed in positive territory, notably in the first half of the week. On the other hand, the profit-taking on the global equity markets and the spike in risk aversion deteriorated the situation on the Polish FX market as well.The interest rate cut and slightly hawkish comments have already been forgotten by the markets. Nevertheless Polish commercial banks are slowly preparing to cut their saving accounts interests as 7% offers do not seem to be sustainable under 3.5% basic rate conditions.
The start to the new week does not look optimistic. The zloty broke above 4.600 EUR/PLN and in the short term there is space to weaken as far as 4.80 EUR/PLN. The weakness can be enhanced by the bleak sentiment on the equity markets.
| Bonds 2Y | Close | change |
| Czech Rep. | 3.70 | 0.09 |
| Hungary 3Y | 12.61 | 0.12 |
| Poland | 5.67 | 0.18 |
| Slovakia | 2.40 | -0.05 |
| Eurozone | 1.26 | -0.13 |
| USA | 0.88 | -0.02 |
| Bonds 10Y | Close | change |
| Czech Rep. | 5.64 | 0.01 |
| Hungary | 12.12 | 0.45 |
| Poland | 6.30 | 0.15 |
| Slovakia | 4.75 | 0.42 |
| Eurozone | 3.03 | -0.10 |
| USA | 2.68 | -0.06 |
Hungary
The Hungarian forint has been hurt again by the political mess and growing concerns about this year’s budget deficit target. Socialists and Free Democrats agreed over the weekend on the nomination of the economic minister Mr Bajnai as new PM candidate. The Parliament will vote about this on April 5, but it seems that he is committed to the current budget deficit target of 3%. The challenge is that budget could be in a worse shape due to the massive 5% recession this year and fiscal measures may tackle the welfare system.
Press leaked that the finance ministry prepared this type of spending cut package already in February, but the Gyurcsany government did not want to carry it out because of the political cost. The package is estimated to cut spending by 400-600bn or about 1.3%-2%of GDP.
The forint plunged to 307-310 this morning and may remain volatile in the coming days.
