A pause in data flow
|This week, the region will take a pause in terms of data flow. More relevant economic releases are only scheduled in Poland, which will publish industrial output and retail sales growth for February. These releases will allow for a pretty accurate estimate of how the economy has been doing in the first quarter of 2023. In particular, retail sales will be watched as, in real terms, they declined in January 2023, suggesting the underlying weakness of private consumption. We will also see labor market data, with February’s unemployment rate releases scheduled in Croatia, Hungary, Poland and Slovakia. Wage growth will be published in Croatia, Poland and Serbia. Finally, in Serbia, the current account balance for January will be released.
FX market developments
It was quite a volatile week for the markets in the aftermath of the failure of US bank SVB and Credit Suisse's search for liquidity at the end of the previous week. The ECB's raising of interest rates by 50 basis points on Thursday was another key event last week. The ECB lowered the inflation forecast for 2023 and 2024 (especially the latter). Yet, even then, inflation is considered to be ‘too high for too long’, which is a clear indication of further rate hikes. Local currencies have weakened against the euro, with the Hungarian forint clearly underperforming its peers and the EURHUF touching 400 last Thursday. Depreciation of the Czech koruna and Polish zloty was less pronounced over the last week. As for the Czech koruna, the recent development matches our expectations for a weakening of the Czech currency. In Czechia, it will be interesting to watch the growth dynamics of wages. If they prove stronger than expected and enter double-digit dynamics, it may affect the monetary policy decisions.
Bond market developments
Turmoil on global markets, triggered by panic around poor governance, risk management and the supervision of a few banks, led to risk-off mode, which contributed to a decline of government bond yields in all CEE countries except for Hungary. The most spectacular decline could be seen in the CZGB yield curve, where the short end collapsed almost 40bp w/w. On the other hand, Hungarian bond yields, especially at the short end, continued to inch up. The Hungarian debt agency conducted an auction of 3M, 6M and 12M T-bills last week and in each of them the average yield increased (10-30bp) compared to the previous auction. Only the reopening of a 10Y green bond led to a lower yield compared to previous auctions. Today, the Slovak debt agency will offer the reopening of four different bonds with maturity ranging within 2-12Y, targeting to borrow EUR 400-500mn, which would bring the YTD issuance to 56% of the full-year plan. Romania will reopen ROMGBs 2024, 2025, 2030. Czechia and Serbia will issue T-bonds as well. Hungary will offer T-bills on top of regular bond auctions.
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