Headlines
Currencies: Forint still at all time lows against the CHF
Fixed Income: Czech inflation dropped unexpectedly by 0.3% in August
Czech Republic
Demand for Czech bonds after the issuance of the 10Y Eurobond (EUR 2bn) has remained firm, as expected, which was clearly visible in yesterday’s auction of the 3Y government bond benchmark. Although the bid-cover ratio reached 3.4 in the first competitive round, the MinFin sold just CZK 6.8 bn, while the original estimate was CZK 7bn.
The strong demand for Czech bonds could be explained too by market bets that superlow official rates of the CNB will be kept for a long time. This opinion was supported by fresh cautious comment of new CNB’s member Kamil Janacek, who said that he had no problem with accommodative policy, though just few weeks ago he warned that rates should be raised.
In our view the CNB will not increase the official rate at least until the second half the next year and this opinion was strengthened by today’s report of the August inflation. The headline CPI index declined by 0.3 %, which was much more than the market expected. Although the decline was primary a result of lower food prices it still brings a strong message to the central bank that disinflationary pressures prevail in the Czech economy.
| Currencies | change | |
| EUR/CZK | 24.71 | 0.0% |
| EUR/HUF | 287.7 | -0.2% |
| EUR/PLN | 3.947 | 0.0% |
| USD/PLN | 3.105 | 0.0% |
| EUR/USD | 1.268 | -0.3% |
| USD/JPY | 83.7 | 0.3% |
Hungary
The Hungarian forint reacted positively to the Economic Minister’s press conference and the pair appreciated to 287 from 289 in the afternoon. Mr Matolcsy said that the government will target a budget deficit below 3% of GDP in 2011, which could mean that they will stick to the previous government’s 2.8% of GDP target.
The government’s tight fiscal policy could keep the forint well supported, while the pair will probably first try to settle in this week’s range of 286-289 before it sets a new trend.
The Hungarian fixed income market rallied with the currency and yields lower about 10bps at the long-end. The short-end remained unchanged and FRAs are looking for a complete 100bps rate hike for the next 9-months.
| Bonds 2Y | change | |
| Czech Rep. | 1.74 | -0.1 |
| Hungary 3Y | 7.45 | 0.12 |
| Poland | 4.75 | 0.06 |
| Slovakia | 1.77 | 0.03 |
| Eurozone | 0.62 | 0.04 |
| USA | 0.51 | 0.01 |
| Bonds 10Y | change | |
| Czech Rep. | 3.33 | -0.02 |
| Hungary | 7.62 | 0.10 |
| Poland | 5.52 | 0.01 |
| Slovakia | 3.69 | -0.01 |
| Eurozone | 2.26 | -0.01 |
| USA | 2.63 | 0.02 |
Poland
The Polish currency went through an uneventful session and stayed in extremely tight range between 3.94-3.95 EUR/PLN for most of the time. The strong outcome of the domestic 5-year auction was widely ignored on the FX market, although bond prices on the secondary market have risen. Also the positive outcome of the Portuguese auction and subsequent good performance of global risky assets did not help much.
We continue to be somewhat more on the defensive side on the zloty for the near term. The domestic scene remains empty and we do not expect any significant positive impetus from global markets to break further in a southern direction.
