Poland to have complete set of 4Q19 data

This week in CEE

The CEE calendar is pretty empty of macro releases apart from Poland. There, we begin with data on the labor market, in particular employment and wage growth in December. Labor market conditions have been tight and not much should change. More important data releases are due on Wednesday and Thursday, however, when industrial output and retail sales growth will be published. We will find out the performance of the economy for the whole last quarter. As we expect pretty decent performance from both industry and retail sales, our Now Cast model currently suggests 3.8% y/y growth dynamics in 4Q19 and 4.2% for the whole of 2019 (FY19 GDP is due the following week). On Thursday, the MPC minutes from the last central bank meeting will also be published. We do not, however, expect to learn anything new. We believe that the Polish MPC will hold through the first quarter inflation increase and sustain the stability of rates rhetoric (inflation to ease, economic slowdown).

FX market developments

Regional currencies followed their own patterns last week. The Czech koruna appreciated to a seven-year high on risk that the CNB might increase rates after inflation hit 3.2% in December. Some relief was provided by Governor Rusnok, who said that rate stability will persist. After the recent strong appreciation, we see correction of the koruna to around 25.20 in February. The zloty could also correct soon, as its recent strong appreciation goes beyond what the trend suggests. The forint went in the opposite direction and fell last week. While a large part of the excess liquidity could be drained by government HUF issuance, the dovish bias of the central bank could remain unaffected. The forint may thus remain weak and volatile.

Bond market developments

Along with increased inflationary pressures, yields went up in most of CEE, with Hungary demonstrating the highest increase. The markets seem to have started to believe in some tightening next year: while the 3X6 FRA is still just at 25bp, the 15X18 FRA increased in recent weeks and is now at almost 60bp. The difference between the two was virtually zero in August. In the meantime, Czech and Polish yields went up just 5-6bp w/w, while Romanian yields even decreased slightly, despite fiscal jitters. As we have written in our bond report, Serbia is still capable of showing spread declines. This was demonstrated last week, when yields on local euro-denominated bonds went down by more than 20bp w/w.

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