Czech Republic
EUR/CZK temporary dips below the 25.0 level
Hungary
Yields at the short-end drop below the key 7.00%
Poland
Polish construction supports the recovery-story
The week ahead
The CNB will leave its rates unchanged and send a neutral message
Overview
Czech markets still shrugs off turbulent domestic politics
No early general election will be held in November in the Czech Republic. At the same time, the Czech koruna has settled close to the highs for this year. These were probably the most remarkable events in the Central European region last week.
The surprising events on the Czech political scene have in the end led to the situation that the general election will be held at its regular date, i.e., in May or June 2010. Nevertheless, while the Czech political scene was in turmoil, financial markets shrugged off the news. Why are the Czech markets not more nervous about the political tension? The potential failure of an agreement on early elections involved the risk of a failure of the talks on next year’s budget. Czech markets are now considering any agreement in the end to be better than the risk of an interim budget management. Now that it is clear that Parliament will work for almost nine additional months, there are paradoxically greater chances of warding off the risk of a high budget deficit (in excess of 7% of GDP) by approving the necessary restrictive measures. The postponement of the election is thus interpreted as good news. In this context, we shouldn’t even be surprised that the Czech koruna easily enjoyed the decreasing aversion to risk on global markets and strengthened to new highs for this year. In addition, we expect that it will again be the sentiment on global markets rather than the domestic political scene that will determine whether the koruna will be able to appreciate further. Or might the CNB Board influence the forex market this week? We really do not expect this will be the case: an unchanged decision by the Czech National Bank is anticipated and the current exchange rate (though stronger) will hardly make any difference in it.
