Czech Republic
Wage growth continues to be very moderate
Hungary
The short-end has already priced further drastic base rate reduction
Poland
Budget deficit talks in focus
The Week Ahead
Czech Constitutional court and July’s inflation readings might bring headlines from central Europe
Overview
Market rightly shrugs off Postponement of Early Election
The uneventful week in Eastern Europe that has just passed was only stirred by a single interesting event, the intervention of the Constitutional Court of the Czech Republic into the ongoing election campaign. Put simply, the Constitutional Court, by its decision to deal with a complaint of a Member of Parliament about the unconstitutionality of the early dissolution of the Lower House of Parliament, has rendered the date of the early election, scheduled for October 9-10, uncertain. If the Court decides in favour of the dissatisfied MP, the election may be delayed by a month or even more (we cannot rule out either that the election will be held as late as the regular June date).
This news did not upset the Czech financial markets to any great extent, as those markets paid more attention to foreign events. Clear evidence of the fact that the increase in political uncertainty did not influence trading significantly was the successful auction of the Czech 10Y government bond. Markets thus seem to anticipate that the Constitutional Court will either turn down the whole case this Thursday, or that the political representatives will quickly agree on a solution that will postpone the election date from October until no later than November.
Naturally, it is not certain that the above scenario, favourable for Czech markets, will eventually come to pass. Without a doubt, the whole case would take a new, more dramatic dimension for Czech markets if the scenario were to appear on the horizon of the election postponement until the regular date, i.e., June 2010. In addition, should the weeks and months to come involve a headlong dismissal of the current technocratic-oriented government, and the country be exposed to the risk of an interim budget, the consequences for the Czech koruna and domestic bonds could only be negative. Let us add, however, that we consider the above-mentioned negative scenario to be highly improbable at the moment. In other words, we believe that, within the next few days, financial markets will view the quarrels about the election date as a pre-election tempest in a teacup.
