Headlines
Currencies: CE currencies finally in correction mode as global risk appetite weakens
Fixed Income: CNB’s Holman pleads for stable rates, showing a rift inside the Board.
Czech Republic
The EUR/CZK pair has finally broken above the 26.0 figure as the evening sell-off in global equity markets hit the Czech currency. The koruna was not saved even by vicegovernor Holman, who quite openly said he would prefer stable official rates and showed satisfaction that the EUR/CZK pair had been back in the 25.0-26.0 territory. Now it will be interesting to see, how the market will react when the koruna has left Holman’s preferred corridor. In our view, the upside for the EUR/CZK is not huge, because a lot Czech exporters would see the rate above the 26.0 level attractive, so they might opt for hedging their euro revenues.
Some disappointments brought the recent hawkish comments to the Czech fixed market, because it might become more uncertain whether governor Tuma and vicegovernor Singer will be able to convince the Board that another rate cut is necessary. Yesterday for instance, the yield curve flattened significantly in bearish fashion as yields at the front end went up by around 8 bps. While we think that a 25 bps rate cut will be delivered next Thursday, the profit-taking on the Czech bond market could easily continue, because Holman also mentioned that he doubted that there would be more non-standard measures in the monetary policy after the meeting (e.g. buying government bonds).
| Currences | change | |
| EUR/CZK | 26.03 | 0.5% |
| EUR/HUF | 267.9 | 0.3% |
| EUR/PLN | 4.199 | 0.5% |
| USD/PLN | 2.820 | 1.4% |
| EUR/USD | 1.491 | -0.9% |
| USD/JPY | 92.0 | 0.1% |
| Bonds 2Y | change | |
| Czech Rep. | 2.03 | -0.09 |
| Hungary 3Y | 7.00 | 0.00 |
| Poland | 5.00 | -0.01 |
| Slovakia | 1.63 | -0.03 |
| Eurozone | 1.37 | -0.03 |
| USA | 1.02 | 0.00 |
| Bonds 10Y | change | |
| Czech Rep. | 4.26 | 0.11 |
| Hungary | 7.33 | 0.00 |
| Poland | 6.14 | 0.03 |
| Slovakia | 4.51 | -0.07 |
| Eurozone | 3.36 | -0.01 |
| USA | 3.56 | 0.05 |
Hungary
The Hungarian forint started the week in a bearish mood and weakened almost 2% during the day to 269.00. Negative opening of US equity markets have clearly intensified fears about the risk in emerging markets carry-trade. There could be some consolidation today, but as long as the global arena is shaky, the risk is for further forint weakness.
The Hungarian fixed income market did not change at all on Monday as the currency’s weakening has not yet affected the bond market. Probably, this will change once the pair reaches the key 270.00 level, but the dovish tone of the central bank could allow the bond market to ignore the currency for longer.
Poland
The Polish zloty weakened on Wall streets sell off and US dollar gains on Monday. The pair inched higher to the 4.21 EUR/PLN in line with the losses of neighboring counterparts. The political stalemate in Romania and inability of its government to sell debt at reasonable prices might have weighed on the region as well. Finally a cautious stance of the zloty bulls ahead of NBP meeting may have played certain role.
In the near future the domestic fundamentals are clearly strong and technical picture still looks zloty – supportive. Nevertheless the development on the FX markets is more in hand of global sentiment, where bulls look somewhat tired in the light of slowly ending US earnings season.
