Headlines
Currencies: CEE weakened on global stocks and Ukraine concern
Fixed Income: Hungary NBH expected to cut rates further today
Hungary
The Hungarian forint spiked on Friday and touched the 271.00 level after a 1% drop, but the sharp move seems to have been the end game of last week’s weakening trend. The pair later recovered to the key level of 268.00 and the market could thus decide on whether it resumes last week’s depreciation trend or not.
Today, the central bank is widely expected to cut rates by 50bps to 6.50%, while some observers highlighted the possibility of a bigger, 75bps move. We think 50bps is the more likely outcome and market usually becomes uncertain about the future after rate cuts, which keeps the pair without a trend for a couple of days.
The Hungarian fixed income market lost some 10bps in yield terms with the weaker currency on Friday and lack of volume has kept prices broadly unchanged since then. The FRA market is convinced about the easing cycle ending at the 5.50% level, which allows for 2-more 50bps move if today’s one gets delivered.
| Currencies | change | |
| EUR/CZK | 25.83 | 0.6% |
| EUR/HUF | 268.4 | 0.3% |
| EUR/PLN | 4.134 | 0.0% |
| USD/PLN | 2.805 | 0.8% |
| EUR/USD | 1.497 | 0.3% |
| USD/JPY | 88.6 | -0.2% |
| Bonds 2Y | change | |
| Czech Rep. | 2.11 | 0.00 |
| Hungary 3Y | 7.22 | 0.08 |
| Poland | 5.08 | 0.00 |
| Slovakia | 2.53 | 0.06 |
| Eurozone | 1.34 | 0.04 |
| USA | 0.73 | 0.03 |
| Bonds 10Y | change | |
| Czech Rep. | 4.26 | 0.05 |
| Hungary | 7.69 | 0.14 |
| Poland | 6.19 | -0.01 |
| Slovakia | 4.52 | 0.04 |
| Eurozone | 3.27 | 0.00 |
| USA | 3.38 | 0.04 |
Czech Republic
The Czech koruna finished last week on sharply lower as it tracked the rest of regional markets, which were under pressure of temporary weaker equity markets and may be some fears about Ukraine’s willingness to pay it sovereign debt. As a result the EUR/CZK pair headed north and even tested the 26.0 figure.
The koruna will probably erase most of its losses this morning, because equities and emerging markets seem to be back in their bullish mode. Later on however, the koruna should watch the forint as it might react to a decision of the Hungarian central bank.
Concerning the domestic bond market – it still lacks strong stimuli these days and yield curve volatility continues to be minimal as even the short end does not follow bigger koruna’s changes. It seems that the market has become quite sure that the CNB will not change official rates for foreseeable future.
Poland
The Polish zloty extended losses at the end of the week. It was mainly weaker global equities and stronger US dollar that enhanced further profit-taking in Central Europe. Beside that, certain concerns on Ukraine debt emerged after its state railway company said it would seek to restructure a 550 million USD loan, which could have certain negative spillover on the whole region as well.
We believe the zloty could calm down a bit at the beginning of the new week. The major domestic issue is the retail sales and central bank meeting, both scheduled for Wednesday. Nevertheless investors already know that domestic fundamentals are sound and global sentiment should continue to drive the zloty in the sessions ahead.
