Headlines
Currencies: Polish Finance Ministry opposes forecast of the European Commission
Fixed Income: Czech Finance Ministry publishes heavy issuance calendar for June
Czech Republic
The Czech forex market has started the week in good mood as the koruna benefited from increasing appetite for riskier assets. The currency ignored negative headlines about the poor budget developments and the pessimistic projection from the EC for the Czech economy and firmed. Hence, the EUR/CZK pair even tested the 26.50 level, but failed to break below it.
Today, the domestic calendar is empty, but Thursday’s CNB meeting is getting closer. We expect the market to cautiously await this meeting and trading will be light both today and tomorrow.
The Czech bonds eased and the yield curve steepened in a bearish fashion as several negative news headlines hit the market yesterday. First, the MinFin revealed its issuance calendar for June, which quite heavy – particularly for the long end of the curve. The MinFin plans to issue once again a 15Y benchmark (like in May), we think will be difficult to absorb by the market. Secondly, the budget deficit reached CZK 55.7bn in the first four months of 2009, which was the first original plan of the FinMin in its budget for 2009 (currently the deficit is estimated at CZK 150 bn). Last but not least, the poor performance of Czech bonds was cause by bearish sentiment in core bond markets too.
Since the CNB meeting is getting closer the market will probably slip into wait-andsee mode ahead Thursday’s policy decision. Nevertheless, as there are a lot negative factors for Czech bonds, we think there will be hardly some room for any positive developments till the Central Bank meeting.
| Currencies | Close | change |
| EUR/CZK | 26.55 | -0.1% |
| EUR/HUF | 285.1 | -0.6% |
| EUR/PLN | 4.358 | -0.3% |
| USD/PLN | 3.275 | 0.0% |
| EUR/USD | 1.335 | 0.2% |
| USD/JPY | 98.9 | -0.4% |
| Bonds 2Y | Close | change |
| Czech Rep. | 3.16 | 0.15 |
| Hungary 3Y | 10.69 | 0.05 |
| Poland | 5.57 | 0.07 |
| Slovakia | 2.72 | 0.09 |
| Eurozone | 1.41 | 0.03 |
| USA | 0.95 | 0.04 |
| Bonds 10Y | Close | change |
| Czech Rep. | 5.60 | 0.02 |
| Hungary | 10.56 | 0.05 |
| Poland | 6.21 | 0.01 |
| Slovakia | 5.12 | 0.08 |
| Eurozone | 3.25 | 0.04 |
| USA | 3.17 | 0.01 |
Hungary
The Hungarian forint had another good day helped by the ‘yes’ vote in the Parliament on the Bajnai-package beside positive global equity market sentiment. The package scraps the 13th month bonus payment for pensioners and public workers and will increase the VAT rate to 25% from 20% on the 1st of July.
The forint has neared the 285 level with a minor correction overnight back to 287, but so far the light positioning of participants has kept market movements slow and gradual.
The Hungarian bond market was virtually unchanged and there seems hardly any interest towards HGBs. The downward pressure on core bond markets keeps investors shy from fixed income securities, despite the currency’s good performance. Spreads are however still tightening with unchanged local yields. So the narrowing of the 5y5y forward spread to around 300bps suggests that the convergence has been going on silently in the background.
Poland
The Polish zloty shrugged off the negative forecast by the European Commission. Polish finance Minister Jacek Rostowski contested the forecast and said that he does not expect the Polish economy to contract. He also said that the budget deficit of 6.6% GDP is exaggerated and that under the worst case scenario the deficit could reach 4.6% GDP. That helped the markets to refocus on the global sentiment, which was clearly positive after surprisingly strong US pending home sales. Hence the Polish zloty gained about 0.5% and the pair moved to 4.36 EUR/PLN.From a technical point of view we now see solid chances for the pair to strengthen as far as the crucial level of 4.21 EUR/PLN (2009 highs). As the calendar of domestic events is completely empty this week, the strengthening efforts should depend solely on the core markets sentiment.
