Headlines
The koruna shrugs off the coalition woes
Polish labor market data disappoint - is the rate cut around the corner?
On Tuesday, Central European currencies strengthened against the euro. The koruna thus left a relatively narrow range between EUR/CZK 24.85 – 25.00 and technically opened the room for appreciation to EUR/CZK 24.66.
Interestingly, the koruna and Czech government bonds have performed very well since the last weekend, which brought very poor result of ruling parties and increased political uncertainty. Currently, the main ruling party – ODS- seems to be quite divided whether its lead and PM Necas should take the election result seriously (meaning resign) or not. Nevertheless, should PM Necas be forced to leave his office the government and ruling coalition will not survive. In such a scenario, the koruna and government bonds will definitely face selling pressure.
As regards yesterday’s Polish labor market data, it again raised the likelihood of a rate cut in November (11/7). Although employment remained flat in September (which was in line with expectations), average wages came out below the market consensus as it grew by only 1.6% Y/Y. Not only it was the lowest Y/Y result since January 2010, but the pace of growth was also lower than in any month back in post-Lehman year 2009. The slower wage growth will probably undermine households’ consumption which was the key element that helped Poland to avoid recession in 2009.
| Currencies | % chng | |
| EUR/CZK | 24.79 | -0.4 |
| EUR/HUF | 277.5 | -0.5 |
| EUR/PLN | 4.08 | -0.2 |
| EUR/USD | 1.31 | -0.4 |
| EUR/CHF | 1.21 | 0.1 |
| FRA 3x6 | % | bps chng |
| CZK | 0.57 | 1 |
| HUF | 5.98 | -1 |
| PLN | 4.29 | 0 |
| EUR | 0.22 | 1 |
| GB | % | bps chng |
| Czech Rep. 10Y | 2.28 | -2 |
| Hungary 10Y | 6.61 | -20 |
| Poland 10Y | 4.61 | 4 |
| Slovakia 8Y | 2.67 | 4 |
| CDS 5Y | % | bps chng |
| Czech Rep. | 81 | -1 |
| Hungary | 258 | -8 |
| Poland | 94 | 0 |
| Slovakia | 143 | 0 |
