Headlines
Currencies: Czech trade and industry surprise on the upside
Fixed Income: Czech inflation points to interest rate stability
Czech Republic
The Czech koruna extended gains on a further improvement in investor sentiment on Greece and solid domestic figures. The EUR/CZK pair got as low as 25.57. The unemployment rate rose to a 5-year high at 9.9% in February, but the outcome was still better than expected. Seasonal factors and a pretty positive short term demography outlook may stabilize the level in the upcoming months around 10%. The trade balance also surprised in a positive way with a surplus of 13.1 bln. koruna, up from 3.9 bln a year earlier. At first sight, this looks encouraging, but the improvement is mostly due to slow imports which points to a lack of domestic demand.
Today, solid industrial output data and lower inflation confirm the scenario of a cautious recovery. The much lower than expected inflation outcome might keep the CNB in wait and see mode for quite a long period of time. Nevertheless, the Czech koruna should more focus on global market sentiment and the development on neighboring Polish markets. From a very short term perspective, we are turning somewhat more cautious, but we see any weakness on the Czech FX market as an interesting buying opportunity.
On Monday the Czech yield curve flattened slightly at below-average trading volumes. Shorter maturities have confirmed the increased volatility in recent days; the longer end of the curve lost slightly. Investors obviously had little interest in changing their position head of today's statistics. Moreover, better the than expected trade data together with higher unemployment did affect the market in a negligible way only.
The February inflation as published today showed that the rise of consumer prices may not be a source of concern. This together with expected lower volumes of this year’s new crown emissions might keep interest in bonds today.
| Currencies | change | |
| EUR/CZK | 25.60 | -0.1% |
| EUR/HUF | 266.4 | 0.3% |
| EUR/PLN | 3.877 | 0.1% |
| USD/PLN | 2.833 | 0.1% |
| EUR/USD | 1.362 | -0.4% |
| USD/JPY | 90.1 | -0.3% |
| Bonds 2Y | change | |
| Czech Rep. | 1.37 | 0.02 |
| Hungary 3Y | 6.75 | -0.01 |
| Poland | 4.98 | 0.02 |
| Slovakia | 2.11 | 0.05 |
| Eurozone | 0.89 | 0.00 |
| USA | 0.89 | -0.03 |
| Bonds 10Y | change | |
| Czech Rep. | 4.09 | -0.02 |
| Hungary | 7.59 | 0.01 |
| Poland | 5.93 | -0.04 |
| Slovakia | 4.14 | 0.00 |
| Eurozone | 3.16 | -0.01 |
| USA | 3.70 | 0.00 |
Hungary
The Hungarian forint tested the key 265.00 level early in the day yesterday, but it has yet failed to maintain its appreciation trend and dropped slightly to 266.00-266.50 and stayed there during the day.
Today’s industrial output data was better at 5.7% Y/Y, but this may not be enough to keep the bullish trend alive against worrying news from opposition leader Mr Orban. He met business leaders, who asked for tax cuts, improving competitiveness and for a conditional adoption of the euro. The latter was meant that Hungary should apply for the euro only if it reaches 80% of real economy convergence, which could be many years away. Mr Orban supported the idea of tax reduction and better competitiveness and said that the euro target could be introduced only when it is visible. He also said that the new government’s biggest concern could be how to tell the markets the truth about the budget without hurting the recently gained confidence. The latter could mean that the budget deficit could really be higher than the 3.8% of GDP target, in line with earlier suggestions for a deficit around 7.0-7.5% of GDP.
The Hungarian fixed income bonds had a stable day and yields moved only 2-3 bps. Demand from foreign investors abated and the slightly weakening currency may keep interest low on the market.
Poland
The Polish zloty touched a 15-month high at 3.865 EUR/PLN. The domestic scene was rather empty and it was mainly thanks to further improvement in the Greek debt crisis. The comments by the Greek prime minister and French president Nicolas Sarkozy helped to calm the European markets and further improved the overall sentiment in the region.
From a very short term perspective we are turning more cautious as we see the bulls on the global markets are somewhat losing momentum and waiting for new catalysts. The EUR/PLN pair is also pretty close to important technical barriers at 3.8622 (Fibonacci 61.8%)/3.85 (psycho). Nevertheless, similarly to the koruna we expect any zloty weakness to be only short-lived and see it as a buying opportunity.
