Headlines
Currencies: Polish zloty holding close to EUR/PLN 4.21 resistance
Fixed income: Czech Parliament passes 2010 budget with deficit of 5.2% GDP
Czech Republic
Given a national holiday on Monday, the Czech markets open the week today. Hence, although the koruna was traded off-shore it remained unchanged yesterday.
Both the forex and the fixed income market should welcome the fact that Parliament approved a package of tax hikes and benefit cuts on Friday. They will imply a reduction of the the projected 2010 budget deficit from CZK 230bn to CZK 163bn or in other words the deficit as a percentage of GDP will fall by 2.2 points. We agree with Finance Minister Janota, who believes that the fiscal restriction will save still relatively good Czech sovereign ratings. This should be positive both for the koruna and bonds in a long run.
As concerns trading today, there is nothing on the domestic agenda. So markets will rather watch core markets, while the fixed income market might partly benefit from yesterdays dovish words of central bank vice´-governor Hampl, who thought that the Czech recovery will have a “W” shape.
| Currencies | change | |
| EUR/CZK | 25.15 | -0.1% |
| EUR/HUF | 269.1 | -0.4% |
| EUR/PLN | 4.186 | -1.0% |
| USD/PLN | 2.856 | 0.0% |
| EUR/USD | 1.463 | 0.0% |
| USD/JPY | 89.8 | 0.4% |
| Bonds 2Y | change | |
| Czech Rep. | 2.43 | 0.00 |
| Hungary 3Y | 7.45 | -0.14 |
| Poland | 5.13 | 0.00 |
| Slovakia | 1.79 | -0.03 |
| Eurozone | 1.24 | 0.00 |
| USA | 0.99 | 0.01 |
| Bonds 10Y | change | |
| Czech Rep. | 5.02 | 0.00 |
| Hungary | 7.82 | -0.08 |
| Poland | 6.18 | -0.01 |
| Slovakia | 4.52 | 0.01 |
| Eurozone | 3.26 | 0.02 |
| USA | 3.31 | -0.01 |
Hungary
The Hungarian forint remained in the tight range between 269.00 and 270.00 on Monday. The central bank cut the base rate by 50bps to 7.50% as was widely expected and this has left the market unaffected. Accompanying statement and the press conference highlighted the positive inflation outlook and the improving financial stability. Further rate cuts were not ruled out, but the governor also cited risks surrounding the budget, namely that planned spending cuts for next year might not be sustainable without further measures, although he added that achieving a budget deficit of less than 4% of GDP was still possible.
The expected decision has not altered the picture significantly, so the market could remain range bound around the current level.
The Hungarian fixed income market had a good day overall and yields declined some 10-20bps across the curve. The 3-year bond advanced the most with a 23bps move to 7.20% as the market priced in the scenario of a prolonged period of lower rates. The FRA market continues to see the base rate bottoming out at 6.00%.
Poland
The Polish zloty was almost flat at the beginning of the week, but it had to reverse some losses. The pair is still playing with important technical resistances at 4.21 EUR/PLN and it closed only slightly below this level on Monday. Investors are still a bit nervous from the shareholders meeting of the largest Polish insurer PZU that may decide on a big dividend payout aimed at helping to settle a long standing dispute between Poland and Dutch firm Eureko.
Today the markets may remain cautious as global investors should be resilient to take big bets ahead of crucial US figures scheduled for the second half of the week. Nevertheless we continue to monitor very closely the technical resistance at 4.21 EUR/PLN – any break through that level would turn the zloty into the bearish territory for some time.
