Czech Republic
Growth of industrial output back in positive territory.
Hungary
Change in market sentiment could make an end to rate cuts
Poland
The unstoppable zloty is testing the EUR//PLN 4.0 level
The week ahead
The CNB stays on hold and it will release its new inflation report
Overview
Most CE markets still shrug-off Greek debt problems
The crisis surrounding the financing of Greece’s government debt moved on to a new stage as the risk premium on Greek bonds soared by another 100 basis points. What is more, Greek bonds may undergo another ordeal this week as the European Commission will give its assessment of Greece’s austerity programme on Wednesday. Markets will also look for comments from ECB president Trichet on the issue after Thursday’s ECB meeting. On top of that, the release of key U.S. statistics will have an impact on global market sentiment and thus on CE markets.
So, global markets will continue to monitor the Greek debt issue in the days to come. However, the question is how much the swings in the Greek bond spread will affect Central Europe. Until now, the Greek contagion has not spread into Central Europe to any great extent, and if it has, it has surprisingly influenced Central European markets in a greatly differentiated manner. The forint and partly also the koruna came under some pressure. The spread between the yields of Czech Government bonds and koruna swaps has widened, too.
We doubt whether the different reactions of specific Central European markets to the problems of Greece are well-founded in terms of fundamentals. While Polish macroeconomic fundamentals are currently much better than those of Hungary, and partly better than those of the Czech Republic, it is somewhat overbold to bet on those fundamentals protecting the zloty and Polish bonds from the effects of a potential culmination of the Greek problems, which would lead to a more aggressive form of contagion.
