Weaker zloty eyes first quarter GDP figures

Headlines

Currencies: Weaker zloty eyes first quarter GDP figures
Fixed Income: Dovish CNB comments and very weak IP figures support rate cut hopes

Czech Republic

The EUR/CZK pair tracked the EUR/PLN higher yesterday, while another dovish comment made by a Czech rate setter caused some harm to the Czech currency, too (for more see the fixed income part). Hence, the EUR/CZK pair left its tight range and moved closer to the psychological level at the 27.0.

Today, the session starts with a brief look at the flash estimate for the April IP figures, which have been awful. Production fell 23.2 % y/y, while on month-on-month basis the decline even accelerated. The surprising fact that these poor figures came despite positive effects coming from scrap subsidies in Germany is very disappointing and the koruna will hardly benefit from these figures.

More dovish comments coming from the Czech National Bank brought a further steepening of the Czech yield curve. Recall that CNB’s vicegovernor Singer said that the official rate could go even lower, if the ECB eases its policy further, the disinflation continues and the crisis worsens. Let us remind that Singer’s comment is the third dovish comment in a row coming from the CNB. So, we assume that the Board members are preparing the market for another rate cut.

Today’s release of the April industrial production, which are very weak, could be just another argument for a CNB rate cut. So, we think there is still room for further steepening of the yield curve, while money market and FRA rates could go lower too.

Poland

The Polish zloty got under pressure at the beginning of the session. Recent rise in global risk aversion, nervousness ahead of today’s GDP figures and mainly concerns over expirations of currency options played against the zloty on Thursday. Also the dovish comment by Marian Noga could not provide any support to the Polish currency. Nevertheless the rumors that the Polish government directly intervened in favor of the zloty to defend the 4.50 EUR/PLN helped the currency to come back below that level.

Today the GDP figures may surprise on the downside. Despite solid retail sales, we do not expect the domestic consumption can fully offset the drop in investment and exports. Hence we expect growth not to have exceeded 0% in y/y terms in the first quarter. If we are right the selling pressure could come back to the market at the end of the week. Nevertheless we have already come to the area, where the government interventions are highly probable.

Hungary

The Hungarian forint had a volatile day that could mark the end of this week’s bear market trend. The forint dropped another 1% during the day to as low as 287.00, but the recovery on the US equity market together with somewhat lower core market yields helped the forint to find some ground and rally to 282.00-283.00..

The Hungarian bond mirrored the currency again and yields declined by about 10bps this morning. The yield curve is almost completely flat at the 10.00% level as the debt management agency is still buying the short to mid part of the curve, while longer-dated bonds have remained at cheap levels.

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