Headlines
Currencies: Correction on global markets pushes CEE currencies lower
Fixed Income: Polish inflation lower ahead of NBP meeting
Poland
The Polish zloty came under pressure as sentiment on the equity market deteriorated on Monday. The pair broke above 4.50 EUR/PLN and lost more than 1% against the euro. It was also lagging behind the neighbouring koruna as some investors were escaping from carry trade positions on PLN/CZK. The slightly lower inflation figure was widely ignored as well as dovish comments from central banker Slawomir Skrzypek. The downward surprise in inflation might support an interest rate cut on the upcoming meeting scheduled for next week. Nevertheless weaker zloty might keep the central bankers cautious.
We believe the zloty should continue to follow the ongoing correction on the equity markets and may weaken further during the week, despite a series of heavy domestic data ahead. Nevertheless we do not expected to see major losses as NBP has made it quite clear that it is ready to defend the zloty to meet the inflation target.
| Currencies | Close | change |
| EUR/CZK | 26.85 | 0.3% |
| EUR/HUF | 282.7 | 1.2% |
| EUR/PLN | 4.543 | 1.0% |
| USD/PLN | 3.153 | 0.0% |
| EUR/USD | 1.387 | -0.1% |
| USD/JPY | 96.5 | -1.8% |
Hungary
Turnaround on global markets pushed the Hungarian forint lower. The pair opened unchanged at 278.00 and weakened to as low as 283.50 this morning due to the sour sentiment abroad.
It seems that the positive sentiment on global markets disappeared and markets are reacting more negatively to incoming news. Given that data has been lagging well behind expectations about a recovery, markets may find it difficult to estimate a fair value of assets, which could allow the fall to extend in time.
The Hungarian bond market reacted only muted to the currency development and to the changing sentiment. Probably lower core market yields allowed the spread between Hungarian and euro zone bonds to widen despite forint yield levels remained almost unchanged.
| Bonds 2Y | Close | change |
| Czech Rep. | 2.92 | -0.02 |
| Hungary 3Y | 10.27 | 0.01 |
| Poland | 5.48 | 0.04 |
| Slovakia | 2.82 | 0.07 |
| Eurozone | 1.61 | -0.04 |
| USA | 1.24 | 0.00 |
| Bonds 10Y | Close | change |
| Czech Rep. | 5.85 | 0.00 |
| Hungary | 10.32 | -0.05 |
| Poland | 6.41 | 0.07 |
| Slovakia | 5.12 | 0.17 |
| Eurozone | 3.51 | -0.05 |
| USA | 3.71 | -0.04 |
Czech Republic
The Czech koruna depreciated at the start of the week as sentiment in emerging markets deteriorated. The released data –April retail sales (fell 2.0 % y/y) and May PPI figures – had no impact on yesterday trading. So, the EUR/CZK pair moved north and tested the 26.90 level. Given the empty domestic calendar, the koruna will focus on other markets and it will particularly watch the EUR/USD behaviour since the USD moves with the pair EUR/CZK too.
Although yesterday’s domestic data (retail sale and PPI) were bond market friendly, the Czech fixed-income market ended the session mixed. While it partly tracked partly yesterday’s rally on core bond markets, the weaker koruna acted as a counter balancing factor. Moreover, the domestic FinMin confirmed that the market will face heavy supply next year - the ministry now expects it needs to borrow CZK 280bn this year, instead of its estimate in December of CZK 148bn.
Today, the domestic calendar is completely empty so the market will focus on foreign markets and events as the calendar is well packed there. Obviously, the front end of the curve will have to watch the koruna too – particularly if it weakens further.
