Czech macro data show a mixed picture

Headlines

Currencies: Czech macro data show a mixed picture
Fixed Income: Czech FinMin sells Eurobond today, demand expected to be strong

Czech Republic

The Czech koruna was only little changed after Friday’s payrolls report and this remained the case after heavy inflows of Czech monthly figures this morning. They showed a mixed picture, because a solid outcome of the July trade balance (surplus CZK 6.3bn) was compensated by weaker-than-expected industrial production data. In this respect, the details of the IP report for July are especially worrying as new orders for cars dropped by 8.8% year-on-year. This figure, however, does not correspond with the info from the Czech local press, that the biggest Czech auto maker Škoda Auto hired another 1,000 temporary workers in August, bringing the total to 2,423.

For the Czech fixed income market the most important item will be the issuance of the new eurobond of the Czech government. The Czech MinFin offers a new 10Y bond, with indicative pricing +115-120 above mid swaps. We see this pricing as highly attractive, so we think that demand will be very strong and the Czech MinFin might actually sell more than planned (EUR 1bn).

Poland

The Polish zloty gained further after a surprisingly favourable outcome of the US payrolls. The pair started to test important levels at 3.92 EUR/PLN (lows from August 2010). The Polish government could have helped the zloty as it approved the final 2011 budget draft. The target for 2011 is set at 40.2 billion zloty, much lower than the 48 billion for this year. Nevertheless the deficit is still seen to significantly exceed 3% of GDP ceiling. Investors ignored neutral comments by central bank governor Belka. He sees no acute pressure for a change in policy setting and says the bank is still in a wait and see mode. On one side, solid growth points to the interest rate hikes, on the other there are no clear signs of inflationary pressure for now.

Today the start of the week should be rather calm due to US Labour Day Holiday. Nevertheless if the bulls remain on the stage, the zloty may push EUR/PLN further down, below 3.92 and open the doors for an appreciation to the 2010 lows at 3.822.

•   Download Full Central European Daily