Polish zloty fails to track equities rally

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Currencies: Polish zloty fails to track equities rally
Fixed Income: Uncertainty around Czech budget prevails

Czech Republic

The Czech koruna still pays little attention to the ongoing debate about the 2010 budget draft and related talks about proposals of austerity measures. So the koruna moved again sideways in a relatively tight range close to the EUR/CZK 25.1.
Given the empty domestic calendar the koruna will focus on core market as the calendar is definitely more interesting there. Should global markets remain calm we believe the EUR/CZK will be lithe changed – at least till Thursday, when the CNB holds its interest- rate-setting meeting.

The Czech yield curve steepened slightly in thin trading yesterday. The fixed income market clearly slipped into a wait-and-see mode ahead of Thursday’s central bank meeting. The market continues to shrug off news coming from domestic politics, which should be interesting for the market since it will set up a bond supply for next year. We however expect only little action during today’s session, because the market will wait for the outcome of the FOMC meeting. 

Hungary

The Hungarian forint calmed down on Tuesday after the appreciation momentum ran out of steam at the 271.00 level. Volume was also modest and the situation may not change much before the central bank meeting on Monday. Some investors think about the possibility of a deeper cut than the consensus view of 50bps, which could weaken the currency, but general sentiment is still neutral on the forint.

The Hungarian fixed income market was also quiet during the day. The only news was an interview with the debt management agency’s deputy leader. He said that this year’s financing need has been broadly covered and smaller auction offers could come in the remainder of the year. This however has not impacted the market yet as players are looking for the higher supply next year, which will be needed if the country does not want to use the IMF loan.

Poland

The Polish zloty surprisingly stayed under moderate pressure even during Tuesday. It failed to profit from massive 4% rally on local equity market and it more or less ignored the core inflation staying at elevated levels (8 year highs). The pair touched 4.15 EUR/PLN, but failed to break through and weakened subsequently in the afternoon session.
Today the retail sales and unemployment figures are in focus. We believe the retail may surprise on the upside, although mainly thanks to inflation and not real consumption. Beside that we are a bit afraid that unemployment figures could come out worse as seasonal factors no longer play in favour of the labour market. Overall the impact on the market should be neutral. The zloty should more focus on the global markets sentiment ahead of the Fed meeting.

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