Headlines
Currencies: Forint lifted by S&P outlook upgrade for Hungary
Fixed Income: CNB sends more signals about further possible easing
Czech Republic
The Czech koruna decoupled from the rest of region and weakened on Friday as dovish signals form the Central Bank’s Board intensified. First, the CNB Minutes surprisingly revealed that governor Tuma and voce-governor Singer voted for a rate cut on the last interest-rate setting meeting. On top of that, this morning the CNB posted on its web site a presentation of Mr Singer, which once again vowed a possibility of further easing. In our view such an option should be now very seriously considered, because the inflation outlook (despite expected VAT hike) is extremely positive.
Hence, both the forex and fixed income market will wait for the September CPI figures, which will be released on Friday. We expect that prices went down (-0.5% m/m) in September, while year-on-year inflation will probably slip into negative territory. This could be the final argument for the CNB for cutting again in November.
So, for domestic markets it could mean that the koruna will continue to underperform the rest of the region, while the front end of the curve will move further south.
| Currencies | change | |
| EUR/CZK | 25.44 | -0.1% |
| EUR/HUF | 267.2 | -1.7% |
| EUR/PLN | 4.216 | -1.6% |
| USD/PLN | 2.940 | 0.0% |
| EUR/USD | 1.464 | 0.8% |
| USD/JPY | 89.8 | 0.6% |
| Bonds 2Y | change | |
| Czech Rep. | 2.39 | 0.00 |
| Hungary 3Y | 7.54 | 0.12 |
| Poland | 5.19 | 0.05 |
| Slovakia | 1.95 | 0.21 |
| Eurozone | 1.21 | 0.01 |
| USA | 0.88 | 0.01 |
| Bonds 10Y | change | |
| Czech Rep. | 4.92 | -0.03 |
| Hungary | 8.09 | 0.02 |
| Poland | 6.25 | 0.01 |
| Slovakia | 4.50 | -0.01 |
| Eurozone | 3.13 | 0.00 |
| USA | 3.23 | 0.06 |
Hungary
The Hungarian forint cheered the surprise news that S&P improved the outlook on Hungary’s BBB- rating from negative to stable. The currency jumped from 271.00 to 267.50 after the announcement and after a bit of an intra-day correction it settled down between 267.00 and 267.50.
S&P cited improving fundamentals behind the decision and that the extension of the IMF loan from spring 2010 to autumn 2010 could reduce volatility around the election in March. In our view, the rating agency has the worst rating level on Hungary’s external debt among the big three, so they may be the first to improve it slowly due to the ongoing fiscal consolidation.
Interestingly, the Hungarian fixed income lost some 10-20 bps on Friday despite the currency’s appreciation. The move was more pronounced at the long-end, where yields rose to 7.80% as the agency’s supply was not matched by demand. The short-end remained unchanged at the 6.75% level, but investors seemed to be cautious at the longend due to the uncertainty about the global outlook.
Poland
The Polish zloty initially weakened as far as 4.30 EUR/PLN as investors were nervous ahead of US payrolls. Nevertheless the sentiment has turned positive as gloomy US figures failed to trigger a more serious sell off on the global equity markets and as the US dollar weakened after the release. Furthermore, the positive development in Hungary, where S&P has lifted its outlook to stable, could have helped. The government signed also a deal with Dutch company Eureko and agreed to pay a special dividend of 4.3 billion US dollars. The zloty jumped on this news toward the EUR/PLN 4.22 area.This week is empty on the domestic scene and the sentiment looks favorable after bears failed to profit from miserable payrolls on Friday. We continue to monitor 4.21 EUR/PLN and the willingness to come back below that important technical level.
