Headlines
Currencies: Polish Finance ministry slashes 2010 growth forecast
Fixed Income: Czech 3-year auction in focus
Poland
The Polish zloty was fairly stable on Tuesday. It tried to break below 4.35 EUR/PLN, but failed and gave up most of the moderate gains in the afternoon. This was mainly due to worsening sentiment on global equity markets driven by the nervousness ahead of the US stress test results and ECB meeting. Beside that, also the fact that the finance ministry slashed the growth forecast could have played a certain role. The new growth forecast of 0.5-1.3% is still in sharp contrast with the gloomy new outlook of the European Commission. The positive aspect of the new forecast is that it is not overly optimistic anymore and can serve as a more realistic bas for the initial 2010 budget outline.
The calendar of domestic events is empty for the whole week. Hence we expect the zloty to closely watch sentiment on the global markets ahead of the stress tests outcome. It seems that at least for today the zloty may remain under moderate pressure. Mid-term view on the other side remains clearly positive.
| Currencies | Close | change |
| EUR/CZK | 26.72 | 0.6% |
| EUR/HUF | 285.0 | 0.0% |
| EUR/PLN | 4.397 | 0.9% |
| USD/PLN | 3.294 | 0.6% |
| EUR/USD | 1.330 | -0.4% |
| USD/JPY | 98.2 | -0.8% |
| Bonds 2Y | Close | change |
| Czech Rep. | 3.09 | -0.07 |
| Hungary 3Y | 10.47 | -0.22 |
| Poland | 5.55 | -0.02 |
| Slovakia | 2.73 | 0.01 |
| Eurozone | 1.38 | -0.02 |
| USA | 0.95 | 0.00 |
| Bonds 10Y | Close | change |
| Czech Rep. | 5.58 | -0.02 |
| Hungary | 10.30 | -0.26 |
| Poland | 6.19 | -0.02 |
| Slovakia | 5.05 | -0.07 |
| Eurozone | 3.20 | -0.05 |
| USA | 3.15 | -0.02 |
Hungary
The turnaround on global equity markets affected the Hungarian forint as well. The currency’s appreciating momentum exhausted in the morning at EUR/HUF 282.00 and was followed by sharp decline towards 285.00. The lack of fresh domestic news may allow the currency to follow the global sentiment for now.
The Hungarian bond market had minor moves with the currency, but yields generally remained unchanged around the 10.00-10.50% yield levels. The 5y5y forward spread has also settled down at the 300bps barrier, thus the market has recovered roughly half of the spread widening from 200bps to 450bps during the crisis
Czech Republic
Yesterday, the Czech koruna weakened slightly as the market was influenced by some profit taking in global equity markets. Today, the domestic calendar is empty so the market will probably eye tomorrow’s ECB and CNB meetings. Therefore we expect quite trading for the koruna today.
The Czech yield curve steepened yesterday as player at the front end of the curve bet on a rate cut tomorrow (we think the CNB will stay on hold), while the long end does not like local news about the poor budget performance. In this respect, it worth noting that First Deputy Finance Minister Eduard Janota will become the new finance minister on Friday. Encouragingly, he intends to cut government spending across the board next year by 10%, including defense spending. The objective is to keep the 2010 budget deficit to a maximum of CZK150bn. He also believes that this 2008 deficit can be kept to CZK 150bn, if the cabinet does not allow the budgets of individual ministries to rise. Although Janota will hold its new post just few months, we think that his targets are not unrealistic, given the fact he is an experienced technocrat at the MinFin.
Today, the most eye-catching event appeared to be on the primary market, as there is an auction of the Czech government bond 3.55%/2012. The Ministry is ready to offer up to CZK 6 bn. While, there is lack of demand for bonds with long duration, we think that the auction of 5Y government benchmark should be matched with solid bids. A successful outcome should bring support for the front end of the curve just one day ahead of an interesting CNB meeting.
