Headlines
Currencies: The koruna shrugs off local politics and continues to track the zloty
Fixed Income: Czech 10Y bond auction was well bid
Czech Republic
The Czech koruna continued to weaken as sentiment in emerging markets deteriorated yesterday. Hence, the EUR/CZK pair established the new two-week high at 25.775.
The domestic political scene continued to digest yesterday’s decision of the Constitutional Court, which might postpone the date for early elections (October 9-10). It seems that Lawmakers intend to give fast-track status to a draft constitutional law for changing the rules for dissolving Parliament, while lawyers for the political parties said later yesterday that it will probably not be possible to hold elections before November. We agree with the Moody’s rating agency, which said yesterday that the postponement of the early elections will be problem only, if it results in delays of necessary budget cuts. So far, we still believe that the early election will be held as soon as in November and some cuts will be delivered.
Today, the only domestic event on the agenda is the release of the wage report for the second quarter, which would be hardly a market mover. We think the koruna will continue to watch the US statistics, while the market may also pay some attention to local politics, if thing get more complicated around the early election date.
Yesterday the main issue on the Czech bond market was the auction of 5.00%/2019 paper. The auction initiated solid demand despite higher political uncertainty (see for more the CZK section). The basic offer was CZK 5B, however, we had expected that demand was higher and reached near to CZK 13B. Therefore in the end, the Finance Ministry sold bonds for CZK 5.86B. Average yield was 5.111%, i.e. lower than 5.710% in previous tranche of the same paper in mid July.
Today, the only item on the domestic agenda is a release of the wage report for the second quarter. It has showed that the wage growth has been still very calm (wages grew 2.8% y/y in nominal and 1.4 % y/y in real terms). These figures should translate in very slow growth of domestic consumption, which should sooner or later cool down the recent increase in FRA rates.
| Currencies | change | |
| EUR/CZK | 25.66 | -0.30% |
| EUR/HUF | 275.1 | -0.40% |
| EUR/PLN | 4.139 | -1.10% |
| USD/PLN | 2.912 | -0.90% |
| EUR/USD | 1.429 | 0.50% |
| USD/JPY | 92.3 | -0.40% |
| Bonds 2Y | change | |
| Czech Rep. | 2.65 | 0.02 |
| Hungary 3Y | 8.38 | 0.05 |
| Poland | 5.16 | 0.02 |
| Slovakia | 2.02 | -0.06 |
| Eurozone | 1.2 | 0.03 |
| USA | 0.92 | 0 |
| Bonds 10Y | Change | |
| Czech Rep. | 5.16 | -0.04 |
| Hungary | 8.51 | 0.08 |
| Poland | 6.08 | -0.07 |
| Slovakia | 4.8 | 0.01 |
| Eurozone | 3.24 | 0.03 |
| USA | 3.33 | -0.04 |
Poland
The Polish zloty trimmed part of the losses from the massive September-welcome sell off. The stabilisation of the equity markets was the main driver of the Polish currency. The pair got back below 4.15 EUR/PLN during the session without any significant domestic impetus. There was still a solid demand for 2-year paper as Ministry sold 3.5 billions of zloty without any problems. So the investors evidently do not bother the probable end of easing cycle so far.
The rest of the week is empty at the domestic scene. We believe the zloty could extend its gains at the beginning of the session thanks to optimism on the Asian markets. Nevertheless later during the day, the outcome of the US ISM in services should be crucial for further moves.
