Headlines
Currencies: Rumours about the devaluation of Latvia kept CE currencies under pressure
Fixed Income: Czech 10Y bond auction should face solid bids
Hunagry
The Hungarian forint weakened during the day for a brief period to 283.00, but again the better US equity market sentiment helped it to recover by the end of the day to 280.50. Domestic politics started to heat up before the June 7 EP elections and some political observers began talking about the possibility of early elections in case the Socialist party faces a big defeat. Recently, the right wing Jobbik party has gained popularity in the polls and this might indicate that the Free Democrats and the MDF may not reach the 5% limit, which could mean a 3-party Parliament after the next elections. Political analysts do not rule out that Jobbik could become the 2nd biggest party after Fidesz, which would mean that Socialists fall back to the third place.
An early election scenario would likely increase uncertainty and could cause some currency weakening, but we do not think it would be a major threat to the mediumterm outlook as recent fiscal tightening measures have already been accepted by the Parliament.
The Hungarian bond market had a quiet day and yields remained around the key 10.00% level. Foreign bond holdings showed slight increase of Ft9bn to Ft2316bn, a sign that foreign investors have become more optimistic about the market.
| Currencies | Close | change |
| EUR/CZK | 26.79 | 0.1% |
| EUR/HUF | 279.9 | -0.2% |
| EUR/PLN | 4.457 | -0.2% |
| USD/PLN | 3.113 | -1.3% |
| EUR/USD | 1.432 | 1.3% |
| USD/JPY | 96.1 | -0.3% |
| Bonds 2Y | Close | change |
| Czech Rep. | 2.96 | 0.00 |
| Hungary 3Y | 10.27 | 0.00 |
| Poland | 5.51 | 0.03 |
| Slovakia | 2.60 | -0.02 |
| Eurozone | 1.46 | 0.04 |
| USA | 0.96 | 0.01 |
| Bonds 10Y | Close | change |
| Czech Rep. | 5.77 | 0.31 |
| Hungary | 10.19 | -0.03 |
| Poland | 6.29 | 0.01 |
| Slovakia | 5.37 | 0.42 |
| Eurozone | 3.68 | 0.01 |
| USA | 3.63 | -0.02 |
Czech Republic
The Czech koruna eased yesterday as rumours about devaluation of Latvia offset positive stimuli coming from global equity markets. Hence, the EUR/CZK moved slightly north but volatility remained very low. If we exclude the domestic bond auction, which usually does not affect the Forex market, the domestic calendar is completely empty today. Thus, the koruna will mostly watch the polish zloty, which might be the most sensitive to further rumors about the devaluation of Latvia.
The Czech yield curve remained in it steepening mode as pre-positing ahead of today’s auction of 10Y government benchmark kept the long bund under pressure. On the other hand, short- term rates on the money market drifted even lower as the risk premium disappears from the market. Obviously, today’s main event will be auction of the 5.00%/2019 government bond at the supplied volume of CZK 8B. The last auction of these securities in late April had a very favourable reception, when demand exceeded supply by 2.5 times. We also anticipate high demand this time; although, due to the anticipated deficit, it is unlikely to reach the previous level.
Poland
The Polish zloty retreated and took back some of the recent gains on Tuesday. The pair came back to the 4.50 EUR/PLN neighborhoods and ignored further gains of equities as well as the weaker US dollar. This was mainly caused by speculation that Latvia could be the first of the Baltics to devalue its currency, supported by rumours coming from the advisor to the prime minister. The week ahead is empty and the zloty should follow global sentiment, which so far remains clearly positive. Hence we believe after the short break the polish currency should regain its positions and move below 4.40 EUR/PLN.
