CEE Macroeconomic and Fixed Income Research

Chart of the Day:

Is the Crisis Over? Greek 10y bond yields collapse just as safe haven Bunds sell-off.

Analysts’ View:

Looking Ahead in CEE This Week: After the previous week’s basically empty macro schedule, the coming week offers much more excitement. The Romanian and the Polish central bank are scheduled to decide on rates on Wednesday, while the CNB will have its regular meeting on Thursday - we expect all of them to keep rates on hold this time. As the month starts, we will have the new PMI readings today and other important economic readings from CEE and Turkey as well. After last week’s yield increases, which now create upside risks to our bond yield forecasts, we are closely monitoring for any further evidence of improving economic activity and inflation in the region.

RS Fiscal: According to media reports, PM Vucic made very upbeat statements about the economy amid a possible softening of the current IMF program last week. According to him, the IMF will increase expectations for GDP for this year. He also told journalists that he is confident that he can agree with the Fund to let he Government reverse expenditure cuts by raising public wages and pensions, as the budget deficit narrowed more than expected but the country’s recession does not seem to be easing yet. Vucic told the press that the government deficit for the first four months of the year will be some 70% below the level agreed with the IMF, meaning roughly EUR 420 m (more than 1% of GDP) in savings. Other data shows, however, that the trade deficit was widening further and industrial output declined too. As the youngest agreement was reached only as late as February this year, we think it will be a difficult task to have the IMF agree to a softening of the programme. We continue to see the EURRSD at 122.5 at the end of this year.

Traders’ Comments:

CEE Fixed income: Many of our markets were closed on Friday and the UK is out today so conditions have been and will be thin, possibly accentuating recent market moves that have taken place on very low turnover. Yields are higher on the week in all of our markets in the sovereign space, most notably in Hungary. The weakness in the HUF and PLN mirrors the sell-off in fixed income and Piotr Marczak, head of public debt department at the Polish Finance Ministry, noted that foreign investors had reduced their holdings of POLGBs in April.