Polish central banker fears Latvian spill over

Headlines

Currencies: Polish central banker fears Latvian spill over
Fixed Income: Hungarian yields up on worsening regional sentiment

Czech Republic

The Czech koruna developed a sideways trading pattern on Friday as both ongoing fears about Latvia’s devaluation and better-than-expected US payrolls were not able to strengthen the Czech currency.

The koruna will start the new week with a quick check of the April trade balance figures, which came out above market expectations. The trade surplus reached CZK 12 bn, which means that the year-to-date-surplus has been CZK 7 bn higher than in the same period of the last year. Unfortunately, the positive foreign trade performance has bee driven by low imports, which have been weak because of very weak domestic demand and much lower oil prices. Nevertheless, still the April figure should be at least temporary positive for the koruna.

The Czech yield curve flattened as the front end of the curve at least partly matched a bearish move in the core bond markets on Friday. The market virtually shrugged off comments coming from governor Tuma, who said that the next CNB step (in terms of official rates) could made on both directions.

Today, the market might try to catch the heavy sell-off in core bond markets, which the domestic market has not fully priced in. Another bearish signal could be the release of the May unemployment figures, which were slightly better-than-expected (the unemployment rate reached 7.9 %). Hence, we can expect there could upward pressure on yields across the whole length of the Czech curve.

Poland

The Polish zloty stayed under pressure on Friday due to the pull-back on global equity markets and fears of Latvia’s devaluation. On Friday, Dariuzs Fillar from NBP said that there could be a negative spill over into the other countries in the region. The zloty subsequently weakened to the 4.60 EUR/PLN neighbourhoods.

Although the Latvian Prime Minister reiterated that no currency devaluation is planned, markets were not convinced. Beside that, it looks as if the equity rally on the global markets has run out of steam which could further worsen the regional sentiment. Nevertheless we do not see major negative correction ahead. Poland proved tobe the most crisis-resistance economy in the EU and the government and central bank are clearly committed to defend further selling pressures.

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