CEE Macroeconomic and Fixed Income Research

Analysts’ View:

PL Macro: Data on industrial output and retail sales released yesterday signal a rather weak beginning to 2Q15. Industrial output growth at 2.3% y/y in April visibly disappointed. The number was well below our expectation, although we were more pessimistic than the market was (our forecast at 4.4% vs. that of the market at 5.5%). The dropping PMI has already suggested that the growth dynamics seen in the previous month (8.8% y/y) are not sustainable, but such a slowdown in output was not expected. As long as the PMI remains above the threshold of 50, we should see a continuation of the positive growth dynamics going forward. The unexpected drop of retail sales (- 1.5% y/y) was another negative surprise. Although expectations of nominal retail sales growth were rather moderate (our forecast 0.9% y/y vs. consensus at 1.0%), the negative figure is a surprise to the downside. As long as sales of durable goods remain positive, however, there is no need to sound the alarm. Data was positive for the bond market and weakened the zloty as the EURPLN increased towards 4.07. At this point we remain confident in our 3.5% FY15 growth forecast.

HU Fiscal: According to draft legislation submitted to the Parliament yesterday, the government plans to keep ‘strategically important’ information about the management and financing of public debt classified for two years. The reasoning in the draft states that full disclosure of the financing plan would give information to markets that qualify as ‘business secrets’. This could endanger the refinancing of the sovereign at the lowest possible cost and result in market manipulation, the draft says. However, the public could still receive ‘consolidated’ information about the development in public debt, the financing plan and strategy. As the legislation is not more exact than this, it remains to be seen whether the draft (if passed in the current form) will result in a substantially different information flow from the Debt Management Agency than currently. We see 10Y yields increasing to 4.0% until this year-end.

TR Rates: The CBT left interest rates unchanged yesterday, in line with expectations. The policy rate remains 7.5% surrounded by an interest rate corridor of 7.25% and 10.75%. The statement was similar to the previous one, with a tad greater focus on inflationary risks. We continue to believe that a 50bps rate cut could be possible after the elections as inflation decelerates, but a sticky inflation and weakening in the TRY would challenge this forecast. We foresee 2.65 USD/TRY and 8.5% two-year bond yield for the year-end.