This week in CEE

This week, the release calendar is quite empty. At the beginning of the week, Poland will publish retail sales data for August and we expect to see positive growth dynamics. The unemployment rate (due Wednesday) should remain flat in August. Furthermore, the Czech and Hungarian central banks hold rate setting meetings. No change in policy rate is broadly expected. In Czechia, the consensus among board members is that stability of rates should last until the mid of the next year at least. In Hungary, a new inflation and growth projection will be published. Although inflation surprised to the upside in recent months, the forecast does not necessarily have to change, due to the expected easing inflationary pressure in the coming quarters. As far as the growth forecast is concerned, the economy performed worse than expected in the second quarter and a downward revision of the central bank's forecast is likely. All in all, a dovish stance should prevail.

The Recovery Index climbed up another notch in the week ending September 12. The further increase was driven by higher electricity consumption and NO2 pollution. Also, mobility to groceries and retail have increased, while mobility to workplace has stabilized over the last month. While during the summer, the season could have had an effect on mobility to workplace, the currently increasing number of new cases and possibility of teleworking could keep this category mostly unchanged. Capacity utilization in the automotive sector is at the pre-pandemic level.

FX market developments

CEE currencies mostly fell, amid a fluctuating global sentiment and increasing coronavirus infections. The latter was especially visible in Czechia and Hungary, with record-high numbers of daily cases being reported. The HUF became the underperformer towards the end of the week, despite the central bank launching its first FX-providing currency swap tender, allotting EUR 575mn at a 2-week tenor to tame pressure on implied HUF yields. The upcoming weeks could be important to watch with regards to new infections, as it increasingly started to affect regional currencies. Czech Premier Babis did not rule out the possibility of a state of emergency in the country.

Bond market developments

LCY bond yields fell considerably in Czechia and Romania last week, but longer-dated swap rates fell across the board in the region, by around 5-10bp w/w. Markets have generally started to become less optimistic about the economic outlook, given the rise of new coronavirus infections. Yield declines did not occur in Poland and Hungary, however. In the Polish case, yield levels have been very low compared to their Hungarian counterpart, while for the latter, debt managers still have to issue a hefty amount of bonds to fill the ever-increasing budget gap. Regional peers (especially Czechia) were quicker to issue bonds earlier this year than Hungary.

In case you missed

CEE: European Commission released new tentative allocation of Recovery and Resilience Fund.

HR: Inflation in August remained in negative territory. S&P affirmed rating at ‘BBB-‘ with stable outlook.

PL: National Bank kept policy rate stable at 0.1%.

RO: Swoosh-shaped manufacturing recovery.

SK: August dragged inflation to lower levels.

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This document is intended as an additional information source, aimed towards our customers. It is based on the best resources available to the authors at press time. The information and data sources utilised are deemed reliable, however, Erste Bank Sparkassen (CR) and affiliates do not take any responsibility for accuracy nor completeness of the information contained herein. This document is neither an offer nor an invitation to buy or sell any securities.

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