Headlines
Currencies: Polish budget gap revised up by almost 50%
Fixed Income: NBP should cut the interest rates by 25 bps
Poland
The zloty stayed steady ahead of the NBP meeting. The currency was unmoved by the upward revision of the budget gap target by almost 50% to PLN 27B. The IMF forecasts an even wider gap of 6% of GDPdue to gloomier outlook for Polish GDP growth.
Today, we expect the Polish central bank to cut interest rates. The ongoing data more or less confirmed that there are no inflation pressures from the side of the domestic demand – wage growth further moderates and employment deteriorates. Also the comments from the key central bankers support the scenario of an interest rate cut. The only problematic question is weakening zloty in light of worsening public finances. The weaker zloty can be uncomfortable for some board members as it has probably contributed to the rise in core inflation. Hence we may see in comments after the meeting clearer shift to the policy of stable rates for the near future. From a trading point of view, most of the markets expect a rate cut. So attention should be on US dollar and global equities in the light of the Fed meeting.
| Currencies | Close | Change |
| EUR/CZK | 26.22 | 0.3% |
| EUR/HUF | 280.9 | -0.5% |
| EUR/PLN | 4.534 | -0.5% |
| USD/PLN | 3.230 | -1.9% |
| EUR/USD | 1.413 | 1.8% |
| USD/JPY | 95.4 | 0.2% |
| Bonds 2Y | Close | change |
| Czech Rep. | 2.80 | 0.01 |
| Hungary 3Y | 10.40 | 0.01 |
| Poland | 5.30 | 0.00 |
| Slovakia | 2.72 | -0.03 |
| Eurozone | 1.47 | 0.02 |
| USA | 1.15 | 0.00 |
| Bonds 10Y | Close | change |
| Czech Rep. | 5.85 | 0.00 |
| Hungary | 10.46 | 0.05 |
| Poland | 6.47 | -0.01 |
| Slovakia | 5.25 | -0.02 |
| Eurozone | 3.47 | 0.01 |
| USA | 3.64 | -0.03 |
Czech Republic
The Czech koruna gave back part of its gains yesterday as fresh worries about Latvia’s currency hit Eastern Europe. The losses on the koruna were nevertheless only limited as the EUR/CZK pair went just temporary above the 26.0 level.
Today, the main event for the koruna should be the NBP and the FOMC meeting. We expect that the NBP should cut rates, which will support a further unwinding of the PLN/CZK carry trades and that might support the Czech currency.
The Czech yield curve steepened at the long end of the curve and went up ahead of today’s auction of the 15Y benchmark. Today, the main event for the domestic market will be an auction of the tranche of the 5.70%/2024 bond for CZK 7B. Long maturities are not very popular on the domestic market; if the Ministry of Finance wishes to sell the entire volume supplied, it will probably have to accept a higher yield. Still the market could be rather calm ahead of today’s FOMC meeting.
Hungary
The Hungarian forint had a relatively calm day as neither news from abroad nor domestic politics brought any new information to the market. The EUR/HUF pair stayed between 281.00 and 283.00 during the day.
Interestingly, the currency’s trading range narrowed to between the 200-day moving average at 279.00 and the 50-day moving average at 284.50. If this range is broken, the pair may set a new trend.
The Hungarian bond market lost some value on the 2nd day of the week. The yield curve rose some 5bps overall and we maintain our concerns about the outlook for the next months due to inflation risks and possible risk aversion.
