How much has market sentiment worsened?

This week in CEE

Market sentiment data will be in focus this week – and the only question is by how much sentiment has worsened in March. Due to the dynamically changing situation, the February retail sales or industry releases that are scheduled across the region will be seen as already out of date. Therefore, the release of Economic Sentiment Indicators on Monday and PMIs on Wednesday will be more informative as far as the economic outlook is concerned. The market sentiment data will be the first real indicators after the introduction of preventive measures. A sharp drop of the PMI in the Eurozone can only indicate where PMIs in the region could move. As the Eurozone is expected to shrink 3.5% this year, we have revised our CEE growth forecast accordingly and sadly we expect recession in all countries in the region.

FX market developments

The HUF fell the most last week among CEE currencies, as the central bank announced that it would scrap reserve requirements and introduced a long-term lending facility to incentivize banks to buy government bonds. Currencies mostly weakened elsewhere, too, but to a lesser extent. The Serbian dinar is relatively strong, due to local factors and the NBS looking after the market. The HRK stabilized after weeks of depreciation, as the CNB demonstrated its willingness and has sufficient firepower to keep the Croatian kuna stable. While the Czech central bank cut more than expected, the CZK still did not weaken too extremely. CEE currencies could remain volatile as news about the coronavirus situation can change market sentiment quickly and substantially.

Bond market developments

Regional central banks put their arsenal in place, which, on top of announcements from major central banks, managed to stabilize the bond market. In Romania, the NBR said last Friday that it is ready to buy government bonds on the secondary market, which pulled yields down substantially. In Hungary, after the MNB announced that it would provide long-term collateralized lending for banks in an unlimited amount, yields dropped and the government was able to sell bonds at its auction. The Polish NBP purchased nearly PLN 19bn of POLGBs on the secondary market in the previous two weeks, which also kept yields in check. Thanks to central bank action, we think that yields in CEE can be kept under control, even if a substantial increase in the supply of government bonds occurs.

In case you missed

CZ: Czech National Bank cut rates further by 75bp, easing cycle likely to continue.

HU: Hungarian central bank kept policy rate unchanged but announced liquidity-supporting measures. Moody's affirmed the ‘Baa3' rating with stable outlook.

PL: Economy expected to contract 3.7% this year. Fitch kept rating unchanged at ‘A-‘ with stable outlook.

RO: Growth forecast revised downward to -4.7% in 2020 RS: Fitch affirmed rating at ‘BB+' with stable outlook.

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