Headlines
Currencies: Construction fuels Polish recovery
Fixed income: Czech FinMin plans Eurobond issue
Czech Republic
The Czech koruna reached fresh highs against the euro and dollar yesterday as positive sentiment in emerging markets allowed the koruna to firm further. As a result the EUR/CZK slipped below the psychological 25.0 level, but the period in which the pair was staying in the 24 area was really short-lived. Still, the recent price action of the koruna clearly showed that the currency has paid very little attention to quite dramatic developments on the domestic political scene.
The end of this week will probably be boring for the koruna since no important figures are published both at home and in core markets. Hence, the koruna will probably develop a sideways trading pattern, while it might again flirt with the EUR/CZK 25.00 level.
The Czech yield curve was only little changed yesterday despite the fact that the koruna set a fresh year-to-date high both against the euro and the dollar. The only news was the announcement from the MinFin that it is going to issue 6Y euro denominated bonds, which will be placed in the domestic market. The kick-off offer will be, however, relatively small - just EUR 300mn, hence it will not fundamentally change future supply of koruna-denominate bonds.
Today, both the domestic and foreign calendar is unattractive, so the market will rather wait for next week when the CNB interest-rate-setting meeting is scheduled.
| Currencies | change | |
| EUR/CZK | 25.17 | 0.80% |
| EUR/HUF | 271.8 | 1.10% |
| EUR/PLN | 4.145 | 1.00% |
| USD/PLN | 2.82 | 1.50% |
| EUR/USD | 1.47 | -0.30% |
| USD/JPY | 91.1 | 0.20% |
| Bonds 2Y | change | |
| Czech Rep. | 2.47 | 0 |
| Hungary 3Y | 7.63 | -0.22 |
| Poland | 5.1 | 0.02 |
| Slovakia | 1.91 | 0 |
| Eurozone | 1.26 | -0.05 |
| USA | 0.93 | -0.06 |
| Bonds 10Y | change | |
| Czech Rep. | 5.18 | 0.09 |
| Hungary | 7.93 | -0.25 |
| Poland | 6.12 | 0.05 |
| Slovakia | 4.6 | -0.2 |
| Eurozone | 3.31 | -0.06 |
| USA | 3.38 | -0.1 |
Hungary
The Hungarian forint set a new 4-week high at 269.00 yesterday, but the appreciation trend seems to have ran out of steam. The weaker opening of US equity markets reversed the currency’s gains and the pair started a gradual weakening trend thereafter to as low as EUR/HUF 272.00. This has lent some support for the morning, but there could be further weakness ahead.
The Hungarian fixed income market had a sharp rally and yields dropped below the key 8.00% level at the long-end, while the short-end narrowed the key 7.00% level. The auction of the 1-year T-Bill turned out better than expected as demand soared to Ft216bn vs offer of Ft40bn and allowed the agency to accept more bids. The cut-off yield dropped to 7.02%, roughly 50bps below the level some days ago. Consequently, the FRA market also priced in deeper rate cuts and the 9x12 tenor was traded at 5.90%.
Poland
The Polish zloty failed to stay below 4.10 EUR/PLN on Thursday. The optimism on markets of risky assets cooled down during the session and the domestic figures were more or less ignored. The industrial output was nearly at the same level as a year ago. Although the contraction is nearing the end, it is happening slightly slower than market expected. The clear leader in the recovery is the construction sector which is growing at solid 11% y/y pace. On the other hand, the situation in mining sector is still pretty tough and there is still a long road ahead with 13% y/y drop currently in place. Recent series of Polish figures does not deviate much from our scenario of a continuing recovery. Hence it does not change neither our scenario of the interest rate stability nor the bullish mid-term outlook for the Polish zloty.
The end of the week could bring some profit taking as the calendar is rather empty and as the zloty has failed to close below 4.10 EUR/PLN.
