CHF/HUF pair at new low as the budget figures disappoints

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Currencies: CHF/HUF pair at new low as the budget figures disappoints
Fixed Income: Czech GDP growth revised up as it benefits from strong consumption

Czech Republic

The volatility of the Czech koruna and the fixed income market remained low yesterday and it seems that will also the case in the coming days, unless there is a big market mover in core markets.
Today, beside a domestic auction of the 3Y benchmark, which should be received quite well, the market could focus on releases of domestic macro figures, which painted a slightly better picture about the economy. First, there was a upward revision of the flash GDP estimate. The growth reached 0.9 q/q or 2.4% y/y (the previous estimates were 0.8 q/q or 2.2% y/y) in the second quarter. Interestingly, the growth was driven not by exports, but by domestic consumption, which is out of line with poor retail sales figures. This is a slightly bullish signal, but we have to be cautious, because there was a huge contribution of inventories too.
The second slightly bullish signal has came from the domestic labor market as the unemployment rate dipped to 8.6 % in August, which is just 0.1 %-point above the level seen in same month of the previous year.

Hungary

The Hungarian forint weakened yesterday. The pair slid to EUR/HUF 289 from 287 overnight and a weakening trend seems to have been established. August budget figures were weak again and the deficit is now standing at 124% of the full-year target, thus the government will have to work hard to achieve its goal.
Detailed second quarter GDP showed that the economy is recovering on exports, while domestic demand – with the exception of government consumption – is shrinking. This could mean that the economy is still vulnerable on the export outlook, so the government may have to implement tough measures after the municipality elections.

The Hungarian fixed income market has also weakened a little bit further and the 10-year yield is hovering around the key 7.50% level.

Poland

The Polish zloty slightly weakened on negative news flow from Europe including a surprising decline in German manufacturing orders. Beside that also growing tensions on the eurozone periphery (Portugal, Ireland) did not help the sentiment on the largest central European market. Despite all the negative news, the losses of the zloty were relatively mild and the pair trades around 3.95 EUR/PLN in the morning.

From a domestic front it is worth mentioning that central bank governor Belka supports measures to limit foreign currency lending, which significantly contributed to excess volatility on the markets in the post-Lehman period.
Today, the domestic scene is once again empty as is the case for the remainder of the week. If the bears remain in the driver’s seat, the zloty should continue to trade in a defensive mode.

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