Markets shrug off gloomy GDP figures

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Currencies: Markets shrug off gloomy GDP figures
Fixed Income: CNB bankers do not exclude further rate cuts

Czech Republic

The Czech koruna went through another rather calm session. Much worse than expected 3.4% y/y GDP decline was still the sixth best within the EU27, which deteriorated by 4.4% y/y in the first quarter. This quite radically changes our view on the Czech GDP for the whole year, which may decline as much as 4% y/y (initial forecast was 1% decline) The markets shrugged off the figure after initial weakness and the pair stayed below 27.00 EUR/CZK for most of the session.

This week is empty on the domestic scene. The koruna should track the sentiment on the global equity markets, where we see ongoing negative correction. That is why we believe the pair may get above 27.00 to the 27.30 neighborhood on the upcoming sessions.

The Czech yield curve steepened amid extremely low trading volumes on Friday after yields lost up to 5 bps at the short end of the curve. The market was influenced by a lower than expected Czech GDP. Later on, CNB members tried to calm the market. CNB governor Mr. Tuma pointed out that the bank prognosis had expected the first quarter as being the worst period for the domestic economy. However, some CNB members were not so optimistic and could not exclude another rate cut.

No fresh statistics are released today. The Czech bonds could mirror the development on the European bond markets. Even the yield curve short end could lose as current yields are still too high.

Hungary

The Hungarian forint tested the 290 level again on Friday, but the slightly better international sentiment helped it to remain below. It has traded between 285 and 290 overnight and this morning and we expect the pair to follow the global sentiment in the next days. This week is light on the macro front, while the political arena has also become quieter and this may allow the pair to follow its regional peers.

The Hungarian bond market was broadly stable on the last day of the week and yields have been hovering around the 10.50-10.00% range. The 5y5y forward IRS spread settled down at around 300bps. Investors however do not show any significant interest towards the fixed income market as the base rate is expected to remain unchanged at 9.5% for many months, while the longer-end seems risky before the VAT hike in July.

Poland

The Polish zloty shrugged off gloomy figures from the neighboring countries on Friday as well as from the eurozone, where the GDP contraction was the worst in the post-war history. Poland releases its GDP at the end of the month and we continue to believe that it should come out below consensus. Although Poland is a closed and less export-dependent economy, the growing unemployment and deterioration in credit availability already limit some offsetting effect from domestic demand.

In the week ahead there are some interesting domestic figures including wages, industrial production, retail sales and unemployment. These should on general confirm the ongoing economic deterioration. Most interesting from our point of view should be the retail sales and the sentiment among consumers that are crucial for the resistance of the overall economy. Nevertheless, the zloty should focus more on the ongoing negative correction on the equity markets, which puts a negative bias on our weekly outlook.

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