Headlines
Currencies: CEE gains on US payrolls outcome
Czech Republic
The Czech koruna profited from the better than expected US payrolls release. The EUR/CZK currency pair failed to stay above 25.80 and moved sharply lower at the end of the week, somehow catching up with recent sharp gains of the Polish zloty.
This week is full of interesting domestic data and events. As it seems that Greece received broad support from European politicians after the austerity package, the CEE is well positioned to extend gains. The Czech data-front is also going to be interesting. Today, we expect a significant improvement in Czech foreign trade despite the waning out of the effect of the scrap premium and more expensive commodity imports. Later during the week the attention should shift towards the CPI and second estimate of GDP, where we expect a significant positive revision.
On Friday,the Czech yield curve in the above-average trading volume fell across the whole length and steepened as the shorter end lost over 10 bps and the longer one closed by 0.5 bps lower only. On the domestic scene the most important event came from the Senate that rejected the bill reducing the VAT on employee benefits. Reduced benefits were the main reason why trade unions wanted to strike last week.
Today's trade balance should show quite a nice surplus. However, we expect it to have hardly any influence on (bond) markets. For these bonds markets, investors must keep in mind that the Ministry of Finance intends to issue a higher volume of bonds denominated in euro versus crown bonds. This may sustain some interest in domestic government bonds. Nevertheless, after Friday's fairly significant steepening, the curve may suffer from a partial correction.
| Currencies | change | |
| EUR/CZK | 25.63 | -0.8% |
| EUR/HUF | 265.6 | -0.4% |
| EUR/PLN | 3.875 | -0.3% |
| USD/PLN | 2.830 | -0.4% |
| EUR/USD | 1.368 | 0.6% |
| USD/JPY | 90.4 | 1.1% |
| Bonds 2Y | change | |
| Czech Rep. | 1.35 | -0.01 |
| Hungary 3Y | 6.76 | -0.07 |
| Poland | 4.96 | 0.01 |
| Slovakia | 2.06 | -0.03 |
| Eurozone | 0.89 | 0.02 |
| USA | 0.91 | 0.07 |
| Bonds 10Y | change | |
| Czech Rep. | 4.11 | 0.00 |
| Hungary | 7.58 | -0.07 |
| Poland | 5.97 | -0.05 |
| Slovakia | 4.14 | 0.00 |
| Eurozone | 3.17 | 0.05 |
| USA | 3.71 | 0.10 |
Hungary
The Hungarian forint finished the week in a good mood after better than expected US data spurred optimism on risky markets. The pair broke through the key level of 266.00 and appreciated to 265.50 later in the afternoon. It seems that the market ignores recent data about higher inflation and the budget deficit and instead is concentrating on the global growth outlook.
The February budget deficit swelled to 44% of the annual target, indicating that concerns about the feasibility of this year’s 3.8% of GDP target are real, but this does not seem to matter at the moment. On the political front, far-right wing Jobbik seems to strengthen to the level of the Socialist party and new research suggests that it may even surpass it at the national level, while on a regional basis it could be as strong as leading opposition party Fidesz in some areas.
The Hungarian fixed income bonds continued to rally on the last day of the week and yields fell about 8 bps at the longer end. The 10-year yield fixing fell to 7.33%, while the 5-year lowered to 6.75% as the market continues to see decent demand from foreign investors. The 5y5y forward spread also compressed to below the key 250bps level. On the other hand, the risk of a significant energy price rise has intensified as energy companies and the regulator emphasized that the more expensive dollar and higher prices for crude oil will have to feed into domestic prices. This could hurt the already optimistic inflation outlook, which may be a risk for the future, while these concerns look to be ignored by the market for now.
Poland
Polish zloty extended gains running to the 3.87 EUR/PLN area. The rally was fueled by better than expected US payrolls and the continuing impact of hawkish comments made by central bankers earlier during the week. Nevertheless we are somewhat suspicious whether recent comments represent prevailing sentiment on the newly reelected board. Although we expect the monetary tightening to come in the second half of the year, it may be difficult for the board to be too aggressive in case of a sharp appreciation of the Polish zloty.
This week is empty on the domestic scene. We are curious to hear any comments from key policy-makers on recent gains of the Polish currency. If the situation in Greece continues to improve, the zloty may try to test another important technical level at 3.85 EUR/PLN.
