Headlines
Currencies: Czech headline inflation deeper in negative territory
Fixed Income: Will the Czech central bank governor leave its post and go to the EC?
Czech Republic
The Czech Koruna has continued to rally since Thursday’s CNB meeting. The EUR/CZK pair has broken below the 25.600 level this morning, which means that the koruna has appreciated 4 % since its recent low reached just ten days ago. We believe koruna’s short term future is still rosy. The target for the EUR/CZK pair is the level seen before the verbal intervention against the currency (25.0-25.20) made by governor Tuma and vice governor Singer.
Anyway, CNB governor Tuma still makes top headlines in the Czech press as PM Jan Fischer proposed the respected governor to become EU commissioner. While Tuma made no comments to such an offer, we can not exclude that he will leave his current job. Nevertheless, we do not think it’s a done deal.
Fundamentally, both the koruna and particularly the domestic fixed income market must assess today’s releases of the October CPI and unemployment figures. The releases were mixed however. The year-on-year headline inflation dipped deeper than expected (-0.2 %) but the unemployment rate surprisingly decline to 8.5 % (from 8.6 %). Overall we expect the released data to be relatively positive for Czech bonds, which might be supported by the strong koruna, too.
| Currencies | change | |
| EUR/CZK | 25.60 | -0.4% |
| EUR/HUF | 273.3 | -0.3% |
| EUR/PLN | 4.227 | -0.3% |
| USD/PLN | 2.820 | -0.9% |
| EUR/USD | 1.498 | 0.5% |
| USD/JPY | 90.1 | -0.3% |
| Bonds 2Y | change | |
| Czech Rep. | 2.20 | -0.03 |
| Hungary 3Y | 7.36 | -0.04 |
| Poland | 5.04 | 0.10 |
| Slovakia | 2.62 | 0.01 |
| Eurozone | 1.28 | -0.01 |
| USA | 0.86 | -0.02 |
| Bonds 10Y | change | |
| Czech Rep. | 4.38 | 0.05 |
| Hungary | 7.70 | -0.09 |
| Poland | 6.14 | -0.02 |
| Slovakia | 4.30 | -0.19 |
| Eurozone | 3.38 | 0.04 |
| USA | 3.53 | 0.02 |
Hungary
The Hungarian forint finished the week in a good mood and tested the key 275.00 level on the way up. It finally broke through this level by the opening on Monday and began this week’s trading at the level of 273.50.
The return of the positive sentiment to equity markets helped the revival of carrytrades on emerging markets and the forint was no exception in this. This week’s inflation and GDP data could have an impact on the market both ways, but as long as the global backdrop is supportive there is not much to worry about for the HUF.
The Hungarian fixed income market also closed the week at higher levels as the appreciating currency lifted bond prices, as well. Yield levels declined about 5bps and the benchmark 10-year yield decreased to 7.43%, further away from last week’s peak. The FRA market sees again the bottom of the easing cycle at 6.00%.
Poland
The Polish zloty stayed in positive mode at the end of the week. The pair further approached 4.20 EUR/PLN despite a slightly weaker than expected US payrolls report. Also a delay in an international loan transfer to Romania from IMF did not bring much nervousness into the region. The investors were more focused on the largest IPO in Europe for this year – shares of utility PGE jumped 14% on their Warsaw debut.
This week is a bit more interesting at the domestic scene. On Friday, we look out for the inflation figures, which should confirm a moderate easing of administrative and cost driven inflation pressures. From a trading point of view, the start to the week looks optimistic as long as the bulls on the Wall Street keep running.
