Headlines
Currencies: Central European currencies extend their rally
Fixed Income: NBP stays on hold and moves closer to a neutral mode
Poland
The Polish zloty strengthened significantly on much better than expected retail sales figures. Although very optimistic on the surface, after adjusting for the rapid growth in food sales, the retail sales just met the consensus. Food sales are traditionally pretty volatile and hence it is difficult to derive strong conclusions from the results. Furthermore it is a nominal figure, which was partly supported by elevated inflation.
Nevertheless we continue to believe in the recovery story for the rest of the year and the last retail sales figures fit into it. Furthermore the NPB is currently of the same opinion and after no change verdict it should deliver more moderate comment pointing to further interest rate stability today. The zloty could appreciate it but it should refocus on the US durables and global equity markets later during the day.
| Currencies | change | |
| EUR/CZK | 25.3 | -0.40% |
| EUR/HUF | 267 | -0.80% |
| EUR/PLN | 4.069 | -1.20% |
| USD/PLN | 2.861 | -1.90% |
| EUR/USD | 1.431 | 0.30% |
| USD/JPY | 94.1 | 0.10% |
| Bonds 2Y | change | |
| Czech Rep. | 2.14 | 0.13 |
| Hungary 3Y | 8.2 | 0.06 |
| Poland | 5.03 | 0.04 |
| Slovakia | 2.18 | -0.16 |
| Eurozone | 1.34 | 0.01 |
| USA | 1.08 | 0.06 |
| Bonds 10Y | Change | |
| Czech Rep. | 5.2 | 0.06 |
| Hungary | 8.3 | 0 |
| Poland | 6.09 | 0.02 |
| Slovakia | 4.89 | -0.01 |
| Eurozone | 3.27 | 0 |
| USA | 3.46 | -0.02 |
Czech Republic
On Tuesday, the Czech koruna strengthened setting a new year’s high at EUR/CZK 25.316 before closing at 25.330. No fresh domestic data were released, hence the domestic currency used global optimism and may be stronger retail sales in Poland. However, its gains were moderate compared to Central European peers. Today, the Czech currency may react to global sentiment again, especially a higher German Ifo index should support interest in risky assets including the koruna. However, yesterday’s maximum warns that its gains could be more limited compared to other CE currencies.
The Czech yield curve steepened slightly in a bearish fashion yesterday. The limited rise in yields could be considered as small profit taking rather then anything else. The only interesting news for the bond market was the Czech Finance Ministry’s announcement that it will issue CZK 6.5 bn worth of state bonds to the European Investment bank to cover damage from floods in June. Although the amount will not be sold on the market, it is good to know that it increases further the gross issuance target for this year (CZK 280 bn).
Today, the domestic calendar is again empty so events in core markets and the koruna’s developments should be key drivers. We think that more koruna gains should be positive for the front end of the Czech curve.
Hungary
The Hungarian forint was helped by the stronger Polish currency and the generally positive equity market sentiment. The pair strengthened a little bit through the key 268.00 level to 266.00. Retail sales data were a bit better for June as retail sales slightly expanded during the month. However, this may not be related to the domestic economy rather tourists’ shopping as the cheap currency attracted lot of cross-border shopping from neighboring countries.
The Hungarian fixed income market had a stable day on Tuesday as the market was consolidating after the sharp rally on the day before. Yields almost everywhere sank below 8.0%, while the long-term forward spread slightly widened to 230bps from 200bps.
