A lot ahead: GDPs, central banks, industry and retail

This week in CEE

This week is going to be quite eventful in CEE. First, we get to see the 1Q23 GDP structure in Slovakia and Romania. So far, we have seen the weakness of private consumption across the region, while the net exports contribution was mostly positive. Further, in Poland and Serbia, the central banks are holding rate-setting meetings and we expect both banks to remain on hold. With inflation declining, however, the tone is likely to become more dovish in Poland, in particular. Finally, the set of data on the performance of the industry and retail sector in April will be released in Czechia, Hungary, Romania, Slovakia and Slovenia, providing us with a picture of how the countries are doing at the beginning of the second quarter. Last but not least, Hungary will publish May’s inflation numbers on Thursday.

FX market developments

Over the last week, we have seen all currencies except the Hungarian forint strengthening against the euro. As for global news, the decline of both headline and core inflation in the Eurozone was an important development for the monetary policy direction. Locally, Poland published May’s flash inflation footprint and the more-than-expected decline of the headline number resulted in a series of dovish comments preparing the ground for the monetary easing at the end of the year. This week, the Polish MPC and Serbian central bank will hold rate-setting meetings. While the interest rate will most likely remain unchanged in both countries, the tone of the statement will be important in terms of evaluating how likely an interest cut in Poland in the 4Q23 will be. Finally, Poland attracted attention last week with the latest legislation on the Russian probe hitting up the discussion on the European level around the rule of law issues. The likely delay in the RRF funds does not, however, seem to be market-moving information.

Bond market developments

CEE government bond markets rallied last week, taking advantage of a decline of bond yields on major markets, which benefited from the US debt-limit deal cleared by the Congress. 10Y yields declined about 10-25bp w/w in CEE. A more spectacular decline of 10Y yields could be seen in Hungary (-40bp w/w), as the Minister of Economy announced a new regulation which should increase demand for Hungarian government bonds both from local financial institutions and households. Part is based on tax incentives, but another part is based on mandatory allocations to government securities for financial institutions, which could be seen as more controversial also by rating agencies. Hungarian debt agencies borrowed HUF 54bn via auctions of three bonds and HUF22.5bn via T-bills. Romania borrowed RON 922mn through the reopening of 7Y bonds while Slovakia issued a new 10Y syndicated bond worth EUR 2bn, boosting the YTD issuance to 90% of estimated financial needs for this year and matching the full-year plan of the debt agency. We expect that the debt agency may still continue in local monthly auctions, but be more selective.

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