Headlines
Currencies: Forint steady ahead of the MNB decision
Fixed Income: MNB cuts its base rate to all-time lows
Hungary
The Hungarian forint finished the week in a good mood on the back of better equity market sentiment worldwide. The pair appreciated to 270.50 from 271.50 during the day and thus recovered quickly from the sharp drop to 272.00 on the night before, when the Fed decided to raise the discount rate. The central bank will decide on interest rates today at 1400CET and consensus widely expects another 25bps cut to 5.75%. The decision is priced in by markets, so it may not affect the forint much, but of course, post-decision reaction is always an open question, so it could be interesting today, as well.
The Hungarian fixed income market had a stable day with yields moving slightly higher in the morning after the forint weakened followed by a quick recovery in the afternoon. The 5y5y forward spread narrowed to 248bps, some 20bps lower from the peaks a week-ago suggesting that the market has become less worried about the longer-term outlook. Today’s decision may bring the opportunity of returning interest and central bank may give us some hints about the probability of another cut in March. The FRA market has a mixed view on that and the forward rate curve is standing between 5.75% and 5.50% giving roughly 50% chance to both scenarios.
Inflation disappointed in January and lingering budget concerns could keep the central bank cautious about the March move, in our view, while the strong forint around 270/€ level could insist some members to lower rates.
| Currencies | change | |
| EUR/CZK | 25.72 | 0.2% |
| EUR/HUF | 270.1 | -0.7% |
| EUR/PLN | 3.964 | -1.1% |
| USD/PLN | 2.963 | 0.8% |
| EUR/USD | 1.363 | 1.2% |
| USD/JPY | 91.5 | -0.5% |
| Bonds 2Y | change | |
| Czech Rep. | 1.50 | -0.08 |
| Hungary 3Y | 7.09 | -0.03 |
| Poland | 4.91 | -0.04 |
| Slovakia | 2.19 | 0.01 |
| Eurozone | 1.02 | -0.01 |
| USA | 0.92 | -0.02 |
| Bonds 10Y | change | |
| Czech Rep. | 4.29 | -0.07 |
| Hungary | 7.96 | 0.06 |
| Poland | 6.10 | -0.04 |
| Slovakia | 4.23 | -0.01 |
| Eurozone | 3.29 | 0.00 |
| USA | 3.80 | -0.01 |
Czech Republic
The Czech koruna was only little changed at the end of last week. There were no market moving factors, so the EUR/CZK pair hovered around the 25.70 level, awaiting stronger price actions either in the Polish or the Hungarian forex market. Given the empty global and domestic calendar the koruna could focus on the interest rate setting meeting in Hungary, which might bring some noise to the CE region.
The Czech bond yield curve flattened on Friday as the long end of the curve remained attractive. Given the fact that the Czech swap rates were unchanged, the drop in long yields brought asset-swap tightening.
The Czech calendar is empty today and tomorrow, hence the bond market might start to prepare for an upcoming auction a 5Y government benchmark scheduled for Wednesday. Given the fact that the last bond action failed, the next auction should be very interesting.
Poland
The Polish zloty was initially hit by Fed discount rate hike that triggered sell of on risky assets and flow to US dollar. Nevertheless the sentiment has changed later during the session and the zloty came back below psycho-level at 4.00 EUR/PLN.
The start to the week is rather empty. We believe that as the investors withstood US discount rate hike and Greece problems may be put aside for some time, the space fo break through further is building up on the EUR/PLN. Domestic figures this week include unemployment and retail sales (scheduled for Tuesday) and NBP meeting (scheduled for Wednesday). We do not believe in change of the neutral bias at NBP meeting, however it seems the new constellation should be rather hawkish in its stance.
