Headlines
Currencies: Forint stronger despite pressure on central bank governor to resign
Fixed Income: Czech central bankers argue against early rate cut
Czech Republic
The Czech koruna remained in a narrow range on Thursday. The koruna was more influenced by the European stock market, while slightly positive revision of Czech industrial production went unnoticed. In the afternoon, the koruna was supported by the better than expected US retail sales. New signals from Latvia can positively influenced the CE market today, as the Latvian government decided to cut markedly budget expenditures (e.g. pensions by 10%) in order to qualify for another IMF loan. The koruna could be also supported by central bank talk, which has showed that CNB Board’s willingness to cut rates further has decreased (for more see the Czech fixed income part).
Czech IRS followed the German yields and slightly went up yesterday after the unsuccessful US 10y bond auction held on Wednesday and before the 30Y US bond auction planned on Thursday. The money market rates and short-term yields remained stable. New comments of two CNB Board Members indicated that their conditions for another rate cut aren’t fulfilled at present. Vice-governor Singer said that a rate cut is possible if the koruna remains stable, inflation low and the recession becomes even worse. For Mr. Tomsik the weak koruna is another argument for stable rates. The June Bank board meeting will be therefore exciting and hardly predictable.
| Currencies | Close | change |
| EUR/CZK | 26.66 | -0.4% |
| EUR/HUF | 277.0 | -1.0% |
| EUR/PLN | 4.460 | -0.6% |
| USD/PLN | 3.153 | -0.5% |
| EUR/USD | 1.409 | 0.6% |
| USD/JPY | 97.8 | 0.10% |
| Bonds 2Y | Close | change |
| Czech Rep. | 3.00 | 0.00 |
| Hungary 3Y | 10.32 | 0.03 |
| Poland | 5.60 | 0.05 |
| Slovakia | 2.81 | 0.02 |
| Eurozone | 1.70 | -0.07 |
| USA | 1.30 | -0.05 |
| Bonds 10Y | Close | change |
| Czech Rep. | 5.85 | 0.00 |
| Hungary | 10.38 | 0.05 |
| Poland | 6.25 | -0.05 |
| Slovakia | 5.23 | -0.17 |
| Eurozone | 3.62 | -0.08 |
| USA | 3.80 | -0.12 |
Hungary
The Hungarian forint resumed its appreciation trend, as the pair fell towards the key 275.00 level overnight. The closure of short forint positions could be the main driver behind the current trend as well as the negative outlook on the USD.
The central bank governor has come under intense pressure to resign both from the opposition ruling party Fidesz and from the ruling Socialists for his company in Cyprus where he transferred his wealth to from another foreign account.
We think he will most likely stay in charge of the central bank, but the political attack on the central bank may raise concerns about the bank’s independence.
The central bank Monetary Council will meet on Monday and will likely keep the base rate on hold at 9.5%. Recent comments from members highlighted financial stability concerns, while only one member noted that a rate cut may happen in the coming months.
Hungarian bond yields declined again by 10bps as the strong currency helps the bond market to move higher. Rising core market yields is however acting against a bigger move lower, so the market could move slowly in either direction. The continuous gradual decline of foreign bond holdings suggest that foreign investors have been slowly dumping bonds onto the market, but it’s a slow process and matching the negative net supply from AKK since the lack of auctions does not allow bond holders to renew their holdings.
Poland
The EUR/PLN pair benefited from the positive sentiment in emerging markets and as threats of Latvia’s devaluation faded away it dipped further south. Hence, decreasing risk aversion coupled with decreasing chances that Latvia would opt for a devaluation helped the zloty to firm.
So, today the EUR/PLN opened the session at the 4.46 level. The monetary statistics will be no markets mover, hence it will be watching important global events and figures (the US consumer confidence data for instance) for some guidance.
