CEE Fixed Income Daily

Analysts’ Views: 

HU CPI: The CSO is to publish the November CPI inflation figures this morning. The 12-month rate is expected to have slightly increased to 1%, from the 0.9% seen in October. We think that a majority of the effect of another 11.1% cut in gas and electricity prices carried out in November will be accounted for in December, bringing a further spectacular slowdown in the 12- month index for the last month of this year. Inflation figures could further support the monetary easing process and we think that the policy rate will be reduced to 3% next Tuesday.

HR Fiscal: Yesterday, as expected, EU Commission made recommendation that Excessive Deficit Procedure (EDP) upon Croatia would be activated and gave Croatia 3-year period to cut the deficit gap below the 3% of GDP mark. Reportedly deficits targets are set approx. 1pp of GDP p.a. lower then Government projections for 2014-16 period. That would correspond to 4.6% target for 2014 and quoting the Finance Minister suggesting the adjustment need slightly in excess of HRK 3bn. Good news is 3-year adjustment period, while government would have to respond quickly to ensure some of the demanded savings they were not eager to deliver according to initial budget plan. So next weeks would reveal more on the revenues/expenditure bias of the consolidation efforts. Obviously we would like to see more effort on the expenditure side, as this would imply opting for some of the structural reforms and hopefully some sustainable savings. Such scenario would dampen the risks on the yields side, which we at the moment see on the upward trajectory towards 5.50% by the mid of 2014.

HR Macro: Yesterday, the CB confirmed a 0.6% y/y contraction in 3Q. The detailed breakdown reveals a slightly stronger than anticipated domestic demand footprint (with the marginal investment growth as a positive surprise), with the opposite being the case on the net export side. The last quarter is seen as bringing a slowdown, with exports and private consumption weighing on the headline figure. The FY13 contraction is seen close to the 1% mark and we are seeing flat GDP in 2014.

TR Macro: Turkish GDP posted 4.4% y/y growth in 3Q13. We are encouraged by the details of the 3Q GDP and hence revise our forecast to 3.8% for 2013 from 3.6%, while we maintain our 4.2% forecast for 2014. The CBT would be less hesitant to hike interest rates in a solid growth environment. However, we continue to expect the CBT to first rely more on other tools, such as FX sales and the reserve requirement policy at least until they observe the potentially remarkable drop in January inflation. The CBT Governor’s speech today may shed more light on this. We continue to expect a 9% two-year bond yield for the year-end.

RO Macro: Industrial production surprised to the upside in October, growing an annual 9.9%, above our monthly estimate (8.1%). The rebound of energy in October, due to the chilly weather, was also an upward driver behind the steady advance of the industrial output. We continue to see the industrial production/exports and agriculture as leading the way towards 2.5% growth this year and maintain our call for 5-year ROGB yields at 5.2% as of end-June 2014.

SK Macro: Industrial production continued to record solid growth in October, rising 6.8% y/y. The figure was in line with our forecast, which was slightly higher than the market consensus. When compared with the previous month (7.5%), there was only a very slight deceleration of growth. Electrical equipment was once again the main driver of growth. Car production, textiles and rubber also contributed positively. However, industrial sentiment dropped in November, mainly on lower expectations for production in the coming months. Although Eurozone sentiment indices suggest further growth, industrial production in Germany – Slovakia’s main trading partner – dropped last month. This suggests that IP growth is likely to decelerate in the coming months. We maintain our forecast for SK government yields to rise to 2.7% by year’s end and 3.0% by end-2014 for the 10Y maturities.