CEE Macroeconomic and Fixed Income Research

Chart of the Day:

Bear Steepening: Since the ECB unexpectedly cut rates at the start of September to what is effectively the zero-bound, market fantasy for lower yields on long dated bonds has receded and we are seeing a move towards bear steepening.

Analysts’ Views:

PL Macro: Data on the current account and inflation rate open this week of macro releases in Poland. We expect to see a deficit on the current account and a negative inflation figure. The CPI index should remain the center of attention and we expect it to come in at -0.2% y/y in August. As the MPC is broadly expected to deliver a rate cut in October, any negative surprise may only strengthen expectations for an overall move greater than 50 bps and keep yields low, at close to 3% by the end of the year.

HU FX: The central bank announced at the weekend that it is ready to provide FX liquidity for the banking sector when the conversion from FX loans to HUF loans takes place in the near future. The conversion should not come in a single step, the central bank announced. The current level of international reserves, roughly at EUR 36 bn, exceeds Hungary’s external debt that is scheduled to mature in the next 12 months (roughly EUR 28 – 29 bn). The drain on the level of funds related to the conversion will be around EUR 8 bn. We continue to see the EURHUF exchange rate at around 310-311 in the upcoming quarters.

Traders’ Comments

CEE Fixed Income: The Scottish referendum is an incalculable uncertainty with the potential to send global markets into a tailspin. With 1/10th of potential voters still undecided, it is impossible to say which way the vote will go. The vote on Thursday will be watched very closely. If the Scots vote for separation then other regional separatists in Europe will feel emboldened (i.e. in Catalonia) which would have negative implications for Spanish bonds and the Euro with negative knock-on effects for the Eurozone periphery as a whole and, by extension, CEE. The effectiveness of ECB plans to provide more monetary stimulus to the Eurozone economy is already being questioned and we have witnessed a shift in focus to the potential for a tightening of US monetary policy. The FOMC will convene on Wednesday. The chances are high that CEE fixed income will follow US bonds as the Fed dictates the course of global monetary conditions.