March unemployment is due in Poland and Czechia

This week in CEE

Determining the probable impact of the coronavirus on the economy is the main news topic at the moment. Over the weekend, Hungary announced the fiscal package and more details should be delivered at the beginning of the week. As for other events, the central bank meetings in Poland and Serbia will be the most important. Both banks have already delivered a 50bp emergency cut and they are expected to pause at this meeting, although it is likely to be a close call in Serbia. To determine the likelihood of further easing in Poland, it will be important to see how expectations regarding the economic outlook have changed. Our scenario assuming a deeper recession is consistent with another rate cut(s) in Poland and in Serbia we also expect monetary easing down the road. The March unemployment rate in Czechia is another release to watch and an increase to 3.6% is expected (local methodology). Also, the Polish Ministry of Family, Labor and Social Policy will release the March unemployment rate and an increase is also a likely scenario.

 

FX market developments

The Hungarian forint continued to weaken and visibly decoupled from peers by Wednesday. This triggered rate tightening by the central bank as it reactivated its 1-week depo facility at 0.9% vs. the previously available -0.05% in the O/N deposit. This halted the rout in the forint, but the currency remained weak. All eyes are on the government's package that is to be announced early this week. The PLN and CZK fell to a much lesser extent than the forint. In Croatia, the CNB continued to intervene massively on the market, but we expect the situation to ease by the summer months and the EURHRK could fall to around 7.60. The Romanian leu is kept under tight management. Keeping the currency, the bond and the money market functioning without disruptions is possible only for a limited period of time. Meanwhile, the pressure is visible in the big jump in implied FX forward yields. The Serbian dinar continues to remain very stable.

 

Bond market developments

The bond market performance was mixed across the region. In Czechia, investors jumped on government bonds, which allowed for very heavy issuance, and kept yields low as well. In Poland, yields also stayed low amid NBP activism. The Polish central bank plans to conduct purchases two times this month on the secondary market, while the MinFin said that PLN 100bn of additional issuance could be necessary due to the fiscal package. In Romania, the NBR also started its purchases, but this could not prevent yields from increasing further. The strongest yield increase at the 10Y segment took place in Hungary, however, albeit in a very illiquid market. Also, the increase was not that extreme at the 3Y and 5Y segments where the MNB's new repo facility could boost demand for govies. Short-term rates also jumped in Hungary after the tightening from the MNB. Hungarian 2Y swap rates exceed both Polish and Czech peers' for the first time since 2015.

 

In case you missed

CEE: Market sentiment worsened visibly in region, confirming upcoming recession.

HR: Fitch affirmed BBB- rating, but changed outlook to stable. Retail trade remained solid, while industry contracted in February.

HU: PM Orban announced first details of fiscal package. Central bank raised short-term rates.

RO: Retail sales still strong in February.

RS: Serbia announced fiscal package worth 11% of GDP. Real economic activity was strong before March.

SK: Retail trade numbers improved before coronavirus outbreak.

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