Headlines
Currencies: Polish zloty below 4.00 EUR/PLN on equities and solid employment
Fixed Income: Polish governor considers interest rate hike
Czech Republic
The Czech koruna continued to trade in a tight range yesterday. The EUR/CZK hovered just around the 26.0 level little affected by the firming zloty.
Nevertheless given the empty domestic calendar the koruna will have to focus on core and other emerging markets. Should global risk appetite increases further we might see more koruna gains.
Long Czech bond yields declined slightly again as the market probably put more bets on a scenario of postponed monetary tightening given the week domestic macro figures and the stable koruna.
Interestingly, Finance Minister Eduard Janota said that the Greek debt problem has not fundamentally affected the CR. He added that the spread on Czech bonds (as compared to German bond yields) has not widened. Such a comment might indicate that the Czech MinFin might consider more seriously to issue another Czech eurobond (in euros), which could provide further downward pressure on the long end of the Czech bond yield curve.
| Currencies | change | |
| EUR/CZK | 25.89 | -0.40% |
| EUR/HUF | 270.6 | -0.20% |
| EUR/PLN | 3.972 | -0.90% |
| USD/PLN | 2.882 | -2.00% |
| EUR/USD | 1.378 | 0.80% |
| USD/JPY | 90.3 | 0.60% |
| Bonds 2Y | change | |
| Czech Rep. | 1.53 | 0.01 |
| Hungary 3Y | 7.15 | -0.02 |
| Poland | 4.97 | 0.02 |
| Slovakia | 2.19 | -0.01 |
| Eurozone | 1 | 0.01 |
| USA | 0.83 | -0.01 |
| Bonds 10Y | change | |
| Czech Rep. | 4.44 | 0.03 |
| Hungary | 7.99 | -0.02 |
| Poland | 6.12 | -0.01 |
| Slovakia | 4.15 | 0 |
| Eurozone | 3.21 | -0.02 |
| USA | 3.69 | -0.04 |
Hungary
Better sentiment on global markets helped the Hungarian forint to strengthen overnight almost 1% to the key 270.50 level from 272.50. Good performance has been purely the result of international factors, which could mean that the market could weaken slightly if optimism fades.
On the domestic front, the budget seems to be the main challenge for this year after Monday’s IMF/EU press conference revealed that international institutions also see greater risk about this year’s 3.8% of GDP deficit target. It seems that they have requested additional spending cuts from the government, which announced freezing part of the spending reserves already last week, but now announced freezing the whole, Ft150bn reserves. This additional Ft100bn spending freeze looks to be a significant change over a one week period.
The Hungarian fixed income market recovered some 10 bps with the currency. Yields fell at the longer-end, while the short-end remained unchanged at 5.70%- 5.75% level. The market has become extremely quiet before the central bank meeting next Monday and thus may follow the currency in the coming days.
Poland
The Polish zloty strengthened below 4.00 EUR/PLN on the positive development on global equity markets, solid employment figures and hawkish NBP comments. The employment outcome for January surprises us (0.9% m/m; -1,4% y/y), as it seems the Polish labor market is able to withstand even cold winter in combination with a growing portion of people being employed in construction. If that is the case it should be seen in better industrial production, scheduled for release on Thursday. The improving economic outlook was also reflected in comments of the central bank governor. He said that bank may need to start considering interest rate hikes. Although he gave no reasons or timing, this fits into our scenario of a first interest rate hike in the third quarter of 2010.
Today the domestic calendar is empty. The zloty may be tempted to test the year low at 3.955 EUR/PLN. Although in the mid-term we are strongly bullish on the Polish currency, we remain cautious for the very short term as the Greek issue isn’t yet resolved. Nevertheless any final technical breakthrough would be a zloty buying signal.
