The most important release this week will be second quarter GDP growth in Czechia. We expect the flash estimate to be deeply negative, even showing a double-digit y/y contraction, driven by the economic lockdown in April. In Croatia and Serbia, June retail trade and industrial output will be published. While in Croatia, a rather modest recovery is expected, in Serbia we should see positive y/y growth dynamics. As for the other releases, inflation is due in Poland and Slovenia. In Poland, we see headline inflation firming slightly in July, while Slovenia is likely to remain in deflation. In Hungary and Romania, the unemployment rate will be published.
The Recovery Index stabilized at the beginning of July. In the week starting July 12, mobility in all categories of groceries, retail and recreation, as well as the workplace, has improved. In particular, mobility in retail and recreation is worth paying attention to, as in many countries it is at the highest level since the pandemic outbreak. The increasing level of pollution is also consistent with higher mobility and improving economic activity. On the other hand, electricity consumption has marginally dropped.
CEE currencies gained very substantially last week on the news that an agreement on the EU Recovery Fund and budget was achieved. The euro got a boost against the US dollar, which was reinforced by the diverging situation in the real economy on the two sides of the Atlantic. This added to the regional currency optimism. The EUR 4bn swap line from the ECB to the MNB and the central bank's restart of government purchases added a bit of local flavor in Hungary, contributing to a slightly stronger appreciation of the forint. That said, market uncertainty may rise, due to coronavirus concerns, so further FX appreciation in CEE is getting less likely.
Yield moves were less remarkable in CEE last week, but the positive sentiment prevailed here as well. In particular, Romanian and Hungarian yields fell. As for the former, the bond auction on Thursday (where RON 200mn in 2034 paper was sold at more than three times bid-to-cover) showed interest in ROMGBs, after some yield increase earlier this month. The recent yield decline in Romania was in accordance with our forecasts. In Hungary, however, the major contributor to the gains on the bond market was the central bank, as it announced that it will restart purchases at the 15Y+ segment of the curve. 10Y yields fell almost 30bp w/w, while the drop was a remarkable 50bp on the 15Y segment last week. Further yield declines on the longer end seem unlikely in Hungary after this move.
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