CEE Macroeconomic and Fixed Income Research

Analysts’ Views:

TR Rates: Based on surveys, the CBT is expected to keep interest rates on hold today and we agree with this. However, we expect to see a dovish signal given the remarkable drop in oil prices and tighter yields. The risk to the consensus and our call is an outright cut in the policy rate and we maintain our estimate for a final 25 bp policy rate cut before year end. The interbank ON repo rate dropped to as low as 8.6% yesterday after rising to between 9.5-10% in October and the first half of November. This liquidity easing could be a strong signal that the CBT may soon follow with a rate cut if conditions remain supportive.

PL Macro: The labour market data displayed further improvement after employment went up 0.8% y/y in October and wages continued to grow by 3.8% y/y. Today, another set of data on industrial output and PPI is scheduled to be released. Industry is expected to expand a meager 1.1% y/y in October, while producer prices should remain negative; close to a rate of -1.2% y/y. From the MPC standpoint, industry conditions seem to be the most important. We do not think, however, that a negative surprise would drain the optimism from the 3Q GDP data and change the MPC bias. For the coming months, the NBP will remain in wait-and-see mode, keeping the policy rate at 2% with a relatively low level of yields (10Y at 2.3% at the end of the year) as a consequence.

Traders’ Comments:

CEE Fixed Income: Yields on CEE local currency government bonds moved higher yesterday ahead of the FOMC minutes last night. FX markets were uneventful and cash CEE corporates moved sideways in secondary trading. The yield on the 10y UST fell from 2.35% to 2.32% around the time of the release of the FOMC minutes before reverting back up to 2.36% so, all in all, it seems investors took the minutes with a pinch of salt and we’re back to where we started. Asian equity markets are lackluster this morning after the preliminary PMI from HSBC and Markit Economics fell to a 6 month low, coming out slightly below consensus expectations at a level of 50 which indicates no growth. European equity futures are signaling an underwhelming start to today’s trading session ahead of PMIs in the Eurozone as well. US CPI will be the core focus in the afternoon with analyst forecasts bundled closely around a rate of 1.7% y/y for the core rate which, if in fact the case, will not ruffle too many feathers either. In the world of CEE financials, Erste successfully placed USD 500 m of 10.5NC5.5 Tier 2 notes yesterday at a yield of 5.625% but the price traded down 1% on the break. Raiffeisen Bank International released 3Q results this morning which showed a net loss of EUR 119 m, beating the consensus for a loss of EUR 137 m but the bank also said its bad-debt provisions will soar at least 57% this year.