Polish retail sales slightly weaker

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Currencies: Polish MPC keeps rates unchanged, expects inflation to accelerate
NEWS: Polish retail sales slightly weaker

Czech Republic

The Czech koruna lost yesterday and the EUR/CZK pair broke above 240.90. While the regional events had only small impact on trading, the main cause of the losses was nervousness from unpleasant American figures. The market thoroughly ignores the domestic debate related to the commencement of pension reforms.

Today, the main focus should be once again on foreign figures. Positive surprise from German index Ifo could help the koruna at the beginning of the session. Nevertheless any disappointment from afternoon US figures could push back to the psycho level at EUR/CZK 25,0.

The Czech yields have fallen and the curve flattened yesterday on its short end, where it lost 1 bps and almost 8 bps on the longer side. The volumes were only slightly below the average and most of the trades could be attributed to the adjustments of portfolios. Comments by Mrs. Zamrazilova of the CNB regarding the need to consider raising interest rates have not affected the market. It is worth noting that the ministry of finance is preparing an emission of bonds with maturity of 50 years. The proposal of the law was handed over to the parliament.

Today is once again without any domestic events. The markets should be affected by technical factors connected to the additional adjustments of portfolios.

Hungary

News that talks with the IMF could resume in the autumn helped the Hungarian forint, which appreciated sharply to 282.50 from the morning’s low at 286.00. The Economic Ministry released a statement and said that ‘the government will likely continue talks with the IMF’.

Since Hungary has to agree with the European Commission on the Convergence Program and the 2011 budget either, the key could be how much different demands of the EC are relative to the IMF’s wish list. The IMF said that they would like to have a smaller bank tax, while they would also like to see more permanent measures to cut spending. If the EC wants similar things, the government may think that it will be worth to agree with the IMF and have stable IMF funding, too.

To make the situation less certain, Fidesz Vice President Mr Kosa said that the party’s position has not changed and that they are not seeking a new loan, but are in contact with the IMF. This could be a message to the IMF that they should not expect the government to compromise on the bank tax, which could be good because both sides will know what the other side wants before the talks start and this could help to reach an agreement later.

The Hungarian fixed income market corrected with the currency yesterday and yields rose close to the 7.00% level at the long-end. Sharp recovery yesterday afternoon however could help bonds to recover a bit today.

Poland

The Polish zloty stayed in defensive mode yesterday and was reluctant to get back below the EUR/PLN 4,00 level. That was mainly due to bad sentiment on global markets driven by shocking drops in US existing home sales. On the domestic scene, the attention was drawn to the rate setting meeting. From the accompanying commentaries, it was clear that the central bank cares about the coming period of increasing inflation which should go in hand with a solid economic growth (over 3% GDP) and a relatively undisciplined fiscal policy. This all provides arguments for hawks, which could push through first interest rate hike by the end of 2010.

Yesterday, another pleasant surprise was the fall of unemployment (from 11.6% to 11.4%) and a solid, even though slightly weaker, growth in retail sales. Weaker retail could be caused by the weaker zloty of previous year which made most of Polish spend their holidays at home and thus spend more on domestic goods and services.

Today the zloty should stay in the defensive. Persisting bearish sentiment on global markets could make EUR/PLN testing the area of the 200day’s and 50day’s averages (4,03-4,05).

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