Zloty eyes Q2 GDP figures

Headlines

Currencies: Zloty eyes Q2 GDP figures
Fixed Income: Another CNB’s board members speaks about a rate hike

Czech Republic

The Czech koruna closed last week in a positive mood which was certainly affected by the speech of the Fed Chairman. The currency pair EUR/CZK even temporary moved below the EUR/CZK 24.70, which was the three-week low.

Today, the koruna will start with a difficult analysis of the commentary of CNB’s vice governor Robert Holman. On the one side, he indicated that the bank could raise interest rates already on the break of the year, however on the other side, he sees the interest level remain low in 2011, among others because of the strong koruna. The koruna could nevertheless benefit from the comments, as well as from the good result of Polish GDP in the second quarter.

The Czech yield curve has flattened on Friday due to high sales volumes. Its gains on the shorter side rose by 1 bps and lost over 2.5 bps on the longer end. The bonds were thus clearly affected by further adjustments of portfolios following the past announcement concerning the Ministry of Finance’s preference for the issue of shorter duration bills.

Today, there are no domestic statistics on the agenda. CNB’s Board member Holman has indicated in an interview for a Czech journal that he does not prelude the raise of interest rates by 25 bps by the end of this or beginning of the next year. Such an opinion of the third member of the Bank Board thus could lead to further flattening of the yield curve today.

Hungary

The Hungarian forint recovered a bit on Friday as Bernanke’s comments brought some relief to high-yielding currency markets, like the forint. The pair closed the week 1% stronger at 283.50/€ and opened unchanged this morning.

The outlook could depend much on the global growth outlook, but if that becomes less of a concern, markets may change focus onto domestic fundamentals, including this year’s budget deficit performance. The government is trying to meet the 3.8% of GDP deficit target, but it has to maintain a balanced budget in the second half of the year plus it has to collect Ft200bn (0.7% of GDP) from financial service providers.

The Hungarian fixed income market lost some 10bps on Friday as global bond yields started to rise after the Fed chairman’s comments. Appetite for bonds could remain weak until global markets find the new equilibrium and given that they have just ended a big rally, their correction may last a bit longer, which could keep Hungarian bonds vulnerable.

Poland

The Polish zloty, similarly to koruna, benefited from the trust of global markets in Ben Bernanke. The currency pair thus achieved the level of EUR/PLN 3.96 without any critical domestic impulses.

Today’s results of GDP for the second quarter could be affected by the spring floods. Slightly weaker industrial and construction figures however should not strongly affect economic activity as a whole, and the over 3% growth should please the zloty. At the same time the positive effect on the zloty can come from global markets.

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