Czech Republic
Czech unemployment sharply higher
Hungary
Forint reaches an all-time low of 317/€, FRA market is looking for 150-200bps of rate hikes
Poland
Though no budget revision has been confirmed, we believe it will come
The Week Ahead
February Inflation Figures Will Show Ongoing Absence of Prices Pressures
Overview
Are foreign investors starting to distinguish among CEE countries?
Last week, foreign investors at last started to distinguish between various CEE countries based on their often very different fundamentals. While sales on stock markets and increased risk aversion drove the forint to nearly 6% losses and new lows, the Polish zloty weakened only slightly, and the Czech koruna even strengthened.
There are basically two explanations for this divergence. Markets might have genuinely found more time to read the macroeconomic data and discovered that the foreign debt of the Czech Republic and Poland are at completely different levels than those of Hungary or Romania. This might indicate that the zloty and the koruna may start to outperform their problematic neighbours in the longer term.
The other explanation is simpler and, in our opinion, more likely: the decoupling of particularly the koruna from the other Central European currencies is primarily due to low liquidity and a few larger koruna buy orders. The generally low liquidity and the shallowness of Central European forex markets are some of the most evident symptoms of the uncertainty that has surrounded the markets since late 2008. In that case, a single extraordinary purchase of koruna’s by Sanofi Aventis (for approximately EUR 1 bn) would be enough for the koruna to stop following its regional peers for some time.
If this low liquidity argument applies, we do not expect any great decoupling of the koruna or the zloty from the regional sentiment for the time being.
