Polish CPI figures in focus

Headlines

Currencies: Forint stronger despite GDP disappointment
Fixed Income: Polish CPI figures in focus

Czech Republic

The Czech koruna gave up a part of it gains, but the price action was not worth to be mentioned as the EUR/CZK pair bounced back just above the 25.50 level yesterday.
Today, the market action could be more interesting as there have been two interesting releases. First, GDP figures for the third quarter surprised on the upside as the economy grew 0.8 % q/q. Moreover the CSO revised higher the growth figure for the second quarter from negative to positive. So, it means that the economy has already bottomed in the second quarter of this year. Secondly the CNB has unveiled the Minutes form its latest meeting, which not only showed the structure of the narrow voting, but signaled that Bank Board members even did not discuss the role of the strong currency. Actually, the Board has said that the exchange rate of the koruna, which had been weaker than had been assumed by the forecast (10 days ago), had been identified as an upside risk to inflation. All these information are definitely bullish arguments for the koruna, which might extend its gains in coming days to levels seen before the verbal interventions (EUR/CZK 25.0).

On other hand, stronger-than-expected GDP growth and firm (though just narrow) opposition against further rate cuts within the Board bring a more mixed picture for the fixed income market, which might not continue to rally in a way seen in past weeks.

Hungary

The Hungarian forint had a volatile day an Thursday as the worsening equity market sentiment pushed the currency 1% weaker to EUR/HUF 271.50 during the day. This did last long however and a bit of stability on global markets caused investors to return quickly to the market. The forint thus recovered the full 1% lost in the morning and narrowed the EUR/HUF 269.0 level again.
This morning’s GDP data was worse than expectations at -7.2% Y/Y, but probably this was because market consensus was too optimistic after recent good production data. Central bank’s more conservative projection was -7.3% Y/Y, while the second quarter figure was -7.4% Y/Y, so the overall picture is that the annual decline has been slowing. This is also the case for the Q/Q data, where the economy contracted by 1.8% between July and September, but less than the 2.0% decline in the second quarter. Overall, the economy seems to track for the expected recovery path. Growth might post an annual decline of about 6.5%.

The Hungarian fixed income market lost some 20bps with the weaker currency yesterday, but today’s stronger forint has already pushed prices back up. The money market seems to be digesting the possibility of a sub-6% base rate scenario over the coming months. The low inflation could allow for that, while the stability of the currency at current levels may be the key. A lot depends on how next year’s rising budget deficit will be financed but the market does not seem to be concerned about this now, which may allow rates to fall further.

Poland

The Polish zloty withstood without any serious problems certain pull back on the US equity markets. The zloty kept its gains from previous session and stayed near 4.12 EUR/PLN. Positive comments from the Polish finance ministry and technical factors could have helped in an otherwise empty session.

Today the CPI figures should show a deceleration of cost-driven inflation and a slow come-back of the headline to more comfortable levels. Nevertheless this should not be a big surprise to anyone including the MPC members. Hence the markets should continue to monitor the global sentiment. It should be crucial for any attempts of the EUR/PLN to test the 2009 lows at 4.06.

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