Headlines
Currencies: CEE currencies under pressure due to the sell off on the equity markets
Fixed Income: Polish inflation should stay at elevated levels
Czech Republic
A negative correction on global equity markets together with dovish comments from CNB vice governor Singer brought more losses for the Czech currency yesterday. Hence, the EUR/CZK pair tested the 27.0 resistance, while this morning the pair successfully broke above the big figure. Should the negative correction in global markets continue, we will very likely see more koruna losses. We think that the next key resistance at the EUR/CZK 29.30.
The main issue on Wednesday's Czech bond market's agenda was the bond auction. The ministry of finance offered CZK 7 bln of 3-year floaters. As investors preferred shorter maturities the auction invoked rather solid demand exceeding 3.57 times offered amount. At the end, the ministry sold papers for CZK 6.762 bln. with the highest yield 81.909 bps above the 6-month Pribor of 2.44%. The previous tranche of the same paper issued mid April raised also high demand and the ministry accepted the highest yield at 98.941 bps above Pribor of 2.69%.
Though the March retail sales, which have been released in the morning, were betterthan- expected, but the 1.1 year-on-year drop is hardly encouraging. Yesterday's higher risk aversion and CNB vice governor Mr.Singer about further rate cuts due to lower industrial production a higher unemployment could support interest in bonds. On the other weaker koruna might limit an expected decline in yields.
| Currencies | Close | change |
| EUR/CZK | 27,07 | 1,0% |
| EUR/HUF | 288,6 | 3,2% |
| EUR/PLN | 4,495 | 2,2% |
| USD/PLN | 3,213 | -0,2% |
| EUR/USD | 1,356 | -0,8% |
| USD/JPY | 95,4 | -0,7% |
Hungary
The Hungarian forint weakened sharply on Wednesday and Thursday morning on renewed global risk aversion and intensifying fears about the CEE banking sector. The pair reached a 2-week low at 288. Sour sentiment could weigh on the market in the next days and it will be interesting to see whether we test again the 50-day moving average now at 295, which acted as a strong support level in the previous easing cycle a month-ago. Tomorrow’s GDP data however could be key as the market is looking for a -7% Y/Y reading, while the first quarter GDP data has been worse in countries where it was published.
The Hungarian bond market lost some 30bps again and yields rose back to above the 10.00% level. The 5y5y forward interest rate swap spread also widened to 320bps, up roughly 50bps from the lows last week and highlighting the deteriorating sentiment towards the country.
| Bonds 2Y | Close | change |
| Czech Rep. | 2,95 | 0,07 |
| Hungary 3Y | 10,54 | 0,12 |
| Poland | 5,79 | 0,05 |
| Slovakia | 2,63 | -0,09 |
| Eurozone | 1,28 | -0,10 |
| USA | 0,86 | -0,04 |
| Bonds 10Y | Close | change |
| Czech Rep. | 5,50 | 0,00 |
| Hungary | 10,22 | 0,07 |
| Poland | 6,40 | 0,09 |
| Slovakia | 5,01 | -0,19 |
| Eurozone | 3,33 | -0,08 |
| USA | 3,09 | -0,10 |
Poland
The Polish zloty was leading regional losses as the spike in global risk aversion triggered correction on the biggest central European FX market. The zloty was additionally hit by comments coming from the finance ministry saying that the Poland will not enter ERM-2 in the first half of the year, which was the previous plan. Further more the EU commission reiterated that Poland will see its deficit balloon to 6.6% of GDP in 2009 and 7.3% of GDP in 2010, which puts the roadmap to euro even more difficult.
Today the figures should prove that the inflation may stay at elevated levels for some time despite the sharp contraction in GDP growth. Under different circumstances it could be slightly positive for the zloty. Nevertheless the ongoing negative correction on the global equity markets should probably keep the zloty under pressure. The pair may head towards 4.60 EUR/PLN in the short term before coming back to the positive mid term trend that we continue to believe in.
