Headlines
Currencies: CE currencies rebound strongly on outcomes of G20 meeting
Fixed Income: Hungarian bonds temporary supported by stronger HUF
Czech Republic
The Czech koruna rebounded strongly on the outcome of the G20 meeting of world leaders. Particularly, CE currencies were boosted by the decision to devote another $750bn in additional capital for the IMF, which could be used as financial help for emerging markets. As a result, sentiment improved quickly in Eastern Europe. The EUR/CZK pair slipped below the 26.50 level. Interestingly, the koruna shrugged off a comment from opposition leader Paroubek, who said that the euro adoption was now secondary issue and this moment the main aim was fighting against the recession (which requires fiscal flexibility).
Today, the domestic calendar is empty, but clearly the eye catcher will be the US payrolls report. Given recent data for the US labour market, it is difficult to expect any good news from this release. We think that a very weak payrolls report could be eventually good reason for profit-taking in al emerging markets and in the Czech forex market too.
The Czech yield curve steepened yesterday as the stronger currency probably lifted demand for short-term instruments, while the long end of the curve tracked bearish price action in core bond markets.
The political developments are not in the focus on the domestic fixed-income market and there will be hardly any domestic (expected) events, which could move with the market. Hence, the market will focus on the US payrolls report, though a possible reaction will be limited as the local marker closes early today.
| Currencies | Close | change |
| EUR/CZK | 26.59 | -1.4% |
| EUR/HUF | 294.0 | -1.8% |
| EUR/PLN | 4.426 | -1.8% |
| USD/PLN | 3.296 | -2.3% |
| EUR/SKK | 30.13 | 0.0% |
| EUR/USD | 1.342 | 1.1% |
| USD/JPY | 99.5 | 0.8% |
Hungary
The Hungarian forint was lifted by the sizeable austerity package that was announced by the new PM candidate. Mr Bajnai sent a 3-pages document to Socialist and Free Democrat deputies asking them to sign the planned austerity measures in advance. This would secure the political support upfront from the new government and therefore would reduce the risk of a no vote in the Parliament later.
The package contains several key measures, like scrapping the 13th month pension and bonus wage in the public sector. It would also cancel radical price subsidies on heating, transport and housing. Lastly, it would tighten social spending for maternity leave, early retirement or disability pensions. Altogether, the package could reduce spending by about 2-3% of GDP annualized and some 1% of GDP in 2009. This would greatly increase the probability of achieving this year’s budget deficit goal of below 3% and would improve the medium-term fiscal path substantially.
The currency appreciated sharply also supported by the G20 announcements. The forint moved more than 3% higher to the March low of 293. There is seems to have find some barrier and we may see some consolidation today. The longer-term outlook is however greatly improved in our view and albeit the political risk is still there, the forint trend may turn into positive in the next months.
The Hungarian bond market followed the currency as usual these days and had a sharp rally with yields lowering to a 2-months low. The 5-year yield narrowed to below 12% and the 5y5y forward spread has compressed 50bps to 330bps suggesting that the market has been repricing the longer-term outlook for Hungary. Bonds could also have some consolidation today after the sharp move, but generally double digit yield levels together with a large-scale austerity may keep bonds attractive.
| Bonds 2Y | Close | change |
| Czech Rep. | 3.62 | 0.00 |
| Hungary 3Y | 12.04 | -0.81 |
| Poland | 5.54 | 0.01 |
| Slovakia | 2.73 | 0.23 |
| Eurozone | 1.50 | 0.23 |
| USA | 0.90 | 0.05 |
| Bonds 10Y | Close | change |
| Czech Rep. | 5.69 | 0.00 |
| Hungary | 11.72 | -0.45 |
| Poland | 6.22 | -0.04 |
| Slovakia | 4.84 | 0.10 |
| Eurozone | 3.16 | 0.13 |
| USA | 2.78 | 0.09 |
Poland
Polish currency strengthened on Thursday, the EUR/PLN pair opened at 4.510 and closed at 4.4125. The zloty, together with neighboring currencies, profited from lower risk aversion triggered by the outcome of G20, which promised to commit further 1100bln US dollars to the IMF. This news boosted sentiment on the emerging markets. The zloty profited also from comments made by Polish minister of finance, who sees the domestic currency weak and thinks it should continue to strengthening due to fundamental reasons.
No fresh data are scheduled for release today. Lower risk aversion may sustain at the beginning of the session and the zloty could keep its gains. Nevertheless we reached our technical target at 4.1 EUR/PLN quite fast and the way further may not be so easy. Beside that, the U.S. payrolls should be exceptionally week and could cap the emerging markets euphoria further.
