Headlines
Currencies: Hungarian forint faces modest profit taking
Fixed Income: Czech parliament passes restrictive 2010 draft budget
Czech Republic
The Czech koruna was only little changed at the end of the last week as the only event was the vote on the 2010 draft budget in the Czech parliament. Recall that In its first reading, the Lower House of Czech Parliament passed the state budget for 2010, with a deficit of CZK 163bn (around 5.3 % of GDP in EU’s ESA95 accounting standards). The budget approval process will be concluded by December’s final vote, which will decide the revenue and expenditure changes proposed. It is worth noting that unlike this year’s budget, the new budget is based on a conservative economic forecast. While this year’s budget anticipated economic growth of 4.8%, the Czech economy is likely to actually decline by approximately 4.5%. For next year, the Ministry of Finance expects that the GDP will fall by 0.4%, due primarily to the restrictive package adopted.
In this sense, we consider the proposed 2010 budget as restrictive and that is why it is bullish for the Czech government bonds (and may be for the Koruna in a long-run too).
| Currences | change | |
| EUR/CZK | 25.91 | -0.2% |
| EUR/HUF | 267.0 | 0.8% |
| EUR/PLN | 4.179 | 0.1% |
| USD/PLN | 2.782 | 0.00% |
| EUR/USD | 1.504 | 0.1% |
| USD/JPY | 91.9 | 0.1% |
| Bonds 2Y | change | |
| Czech Rep. | 2.12 | 0.17 |
| Hungary 3Y | 7.00 | 0.00 |
| Poland | 5.01 | 0.02 |
| Slovakia | 1.66 | -0.14 |
| Eurozone | 1.40 | -0.04 |
| USA | 1.02 | 0.00 |
| Bonds 10Y | change | |
| Czech Rep. | 4.16 | -0.03 |
| Hungary | 7.33 | 0.00 |
| Poland | 6.11 | -0.03 |
| Slovakia | 4.58 | 0.15 |
| Eurozone | 3.37 | 0.03 |
| USA | 3.51 | 0.05 |
Hungary
The Hungarian forint had a quiet day hovering between the levels of 265.00 and 267.00 ahead of Friday’s market holiday. This week’s main point of interest will be whether the currency maintains the downward correction that started last week after setting a new 2009 high of 263.00. The weaker dollar could lend some support to the currency to keep its strength and market positioning seems to be light as the recent appreciation of the forint was driven mainly by short covering instead of new inflow.
The Hungarian bond market finished the short week in a good mood. The auction of 3-, 5- and 10-year bonds saw good demand again, which reassured market players that recent gains could be of permanent nature. Bid-to-cover ratios were around 3.0, while results were close to secondary market levels. The key 7.00% level is only available at the 10-year and 15-year maturities, so this week’s main question could be whether the market will bypass it there, too.
Poland
The Polish zloty stayed nearly unchanged around 4.18 EUR/PLN on Friday. The pair withstood Wall Street losses as well as slightly weaker domestic figures. Polish retail sales rose by 2.5% y/y, less than expected, mainly due to lower sales of autos and fuels. On the other hand the better than expected results of industrial output released earlier during the week as well as slightly milder increase in unemployment continue to confirm our base scenario of ongoing recovery.
The positive start of equities could help the zloty to strengthen a bit. The domestic scene is empty for most of the week and we do not expect any surprises from the NBP meeting scheduled for Wednesday. The pair is currently below important technical resistance at 4.21 EUR/PLN, which should be supportive for the bulls.
