Post-payrolls higher risk appetite helps CE currencies

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Currencies: Post-payrolls higher risk appetite helps CE currencies
Fixed Income Polish budget deficit may reach 3.8 % GDP in 2010

Czech Republic

The EUR/CZK pair is back below the 25.500 as appetite for risky assets increased after US payrolls Friday afternoon.
Today, the domestic calendar contains the July trade balance figures. The foreign trade balance recorded again a significant surplus of CZK 12.2bn, which was a result of a steeper decline of imports than exports. The exports rose on month-on-month basis, which was definitely due to the scrap subsidy applied in Germany and other neighbouring countries. In this respect it is interesting that the biggest Czech car maker Škoda Auto said that the end of the scrap subsidy in Germany could cause production of its popular low-end Fabia model to drop by 17-33% from the peak capacity of 1,200 cars per day. A reduction in output could come in 2-3 months and might again worsen the outcome of Czech exports.

The Czech yield curve was only little changed at the end of the last week as at reaction of the domestic market to the US payrolls figure was relatively calm.
Today’s release of the July trade balance figures showed another huge drop in import, which indicate that domestic demand remains very weak. We think that this characteristic could be visible on Wednesday too, as the Statistical office will release the August very low inflation figures. They should help to reduce the quite high FRA rates, which have increased in recent days without any clear logic behind.

Hungary

The Hungarian forint continued its good performance on Friday after US payroll data reassured investors that the recovery is not at risk for now. The pair reached the week’s high of 272.00 before settling down at 272.50.
The IMF/EU joint mission will hold a conference today at 1500CET and will likely give a positive assessment about the third review that was carried out in recent weeks. This could give some more positive impetus to the currency.

The Hungarian fixed income market followed the currency again and yields have approached the key 8.00% level at the long-end, while the short-end up to 1-year got closer to the 7.50% level. Upcoming inflation data could be the next important step here as people are digesting the impact of the tax increase in July, which had only a modest impact on inflation.

Poland

On Friday the tone surrounding the Polish zloty remained rather optimistic and the pair oscillated below 4.10 EUR/PLN for most of the session. The domestic scene was more or less devoid of news and the pair reflected solid gains of global equity markets and risky assets that shrugged off the surprising spike in the US unemployment rate.
The start of the week should be very calm as the macro-front is empty and the US markets are closed. We believe in moderate optimism and trading below 4.10 EUR/PLN. The markets may be also a bit cautious ahead of 2010 draft budget scheduled to be presented on Tuesday. According to Finance Minister Jacek Rostowski the deficit may nearly double to 52.2 billion zloty (3.8% GDP), despite the fact that Poland is one of the few countries that has escaped the recession so far and experiences only a sharp slow down.

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