Headlines
Currencies: CEE currencies awaiting key US figures
Fixed Income: Polish GDP growth strongest in the EU
Czech Republic
The Czech koruna developed a sideways trading pattern as mixed domestic macro news didn’t trigger too much action on Friday. First, the flash estimate for the July industrial production showed a drop by 18.4% Y/Y in July. Moreover, new orders fell by 22.7% Y/Y. Secondly, a domestic political debate about budget cuts has continued even during the weekend, while a technocratic Finance Minister Janota has not been able to find a support for its package of budget savings. Recall that the Finance Minister warned in a report that the Czech Republic risks running budget deficits of about CZK 230bn (more than 6 % of GDP) for each of the next three years if cuts are not made.
Today and during the remained of the week, the domestic calendar is empty so the koruna has to focus on other markets. The key driver will remain global equity markets and the zloty on the regional level.
Trading volumes in Czech bonds were still on holiday lows on Friday. The yield curve gained along the whole length and steepened slightly. However, the changes were moderate even after the weak July industrial production figures and the government and political parties have not been able to adopt measures for reducing of a ballooning public deficit.
No important events are released for today and the UK bank holiday may diminish trading volumes even today. The budget deficit uncertainty may weight on government bonds, while market’s pre-positioning ahead of Wednesday’s auction could be slightly negative too.
| Currencies | change | |
| EUR/CZK | 25.43 | -0.10% |
| EUR/HUF | 272.2 | 1.00% |
| EUR/PLN | 4.096 | -0.10% |
| USD/PLN | 2.857 | -0.10% |
| EUR/USD | 1.427 | -0.40% |
| USD/JPY | 92.8 | -1.20% |
| Bonds 2Y | change | |
| Czech Rep. | 2.5 | 0.49 |
| Hungary 3Y | 8.29 | -0.01 |
| Poland | 5.11 | 0.02 |
| Slovakia | 2.35 | 0.25 |
| Eurozone | 1.24 | -0.04 |
| USA | 1 | -0.06 |
| Bonds 10Y | Change | |
| Czech Rep. | 5.18 | -0.11 |
| Hungary | 8.4 | 0.04 |
| Poland | 6.11 | -0.03 |
| Slovakia | 4.95 | 0.1 |
| Eurozone | 3.22 | -0.05 |
| USA | 3.43 | -0.06 |
Hungary
The Hungarian forint finished the week in a bearish mood and dropped slightly below the 272.00 level. This morning’s sourer sentiment on global equity markets could keep the currency under selling pressure, which may see it testing the weaker side of the 2-months old 265-275 range.
The Hungarian fixed income market had a slight weakening on Friday on the back of the currency movement and yields inched again above the key 8.00% level above the longer-dated maturities exceeding 2-yeats. Rate cut expectations have so far kept the short-end at 7.60-7.70% and the 9x12 FRA tenor is still pricing in a 3-month interbank rate at 6.5% for the future vs the current level of 7.93%.
Poland
On Friday, the Polish zloty appreciated after better than expected GDP figures, which pointed to 1.1% Y/Y growth in second quarter, the best outcome of all EU members. Growth was primarily led by domestic demand. Export-oriented industry was still in troubles, but relatively resilient household and government spending helped to offset its further drop. Construction is doing surprisingly well (growing 4.5 % Y/Y), which may be the result of government investments and EUR-funded projects. We believe the situation might further improve in the second half of the year as global trade recovers and industrial companies start to rebuild inventories. Hence we are pretty comfortable with our no-change scenario for rates till the end of the year. Nevertheless for the zloty, the start of the week could be a bit sour after the nearly 7% drop in Chinese equities.
