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Erste CEE Macro Comments

Analysts' views: CZ Macro - CPI data in January surprised on the downside. The structure wasn't surprising - as in December the m/m increase was also mainly about oil and food prices, with regulated prices adding the rest.

No demand pressures are visible - still. Regulated prices rose slower than expected. Today's release is going to make it harder for hawks at the Board to press on with their case. Crown responded by weakening to as low as 24.25, still some 0.3 CZK away from fundamentally justified value. We keep our stance of a first interest rate hike in Q3 as inflation will eventually creep upwards. The koruna should weaken in the coming months before returning to 24 vs. the euro by the end of the year.

HU rates: Yesterday the minutes of the latest MPC meeting showed that the Council made a very tight decision at the event. There were three options (25bp cut, hold, 25bp hike) on the table, and 3 members of the seven-member comittee voted each for the hold and the hike options. Rate setter Bihari changed his mind in a second round vote. So, the final outcome was 4-2-1 in favor of a hike. We think that the slow revival of the domestic demand will continue to limit increses of the core inflation measure, while risk assessment regarding Hungary has also improved in the recent weeks. Overall, the release reinforces our view that the 75bp rate increase conducted since November will be enough. We continue to expect the forint and yields in a sideways movement at least until mid year.

SR T-bills: Yesterday MoF conducted the first 53W euro denominated T-bill auction attracting robust investors interest, hence comfortably allowing planned EUR 200mn issuance and surprisingly favorable pricing conditions as the yield landed at 4.48% (significantly lower than 5.25% seen on 6M EUR-linked auction in December). The bid-to-cover ratio of 5 indicates potential for additional EUR debt issuance which will be tested at next week's EUR 200mn 15Y T-bond placement targeting a 5.85% yield. Ongoing EUR issuance should be supportive for dinar,at least in short-term. At the same time demand for RSD debt is also solid. The recent auction showed a 3.5x bid-to-cover ratio and a markedly 196bp rate decline (12.94%) for the 18 month maturity.

SR Monetary policy: For today's Executive Board meeting we expect an unchanged 2W REPO rate (at 12%) as most likely outcome. The recent RSD strengthening alllows for a pause after rate increases by 400bp during the last months. Though, with inflation pressures alive and headline inflation moving well outside the targeted band (3-6% target for YE 11) we continue to anticipate rate hikes in the region up to 100bp in 1H11.

HU macro: Yesterday's trade balance data surprised to the upside, with a surplus of EUR 457mn for December. This is above our estimate of EUR 420mn and also exceeds the market consensus of EUR 400mn. The data is in stark contrast with the industrial output figure released on Tuesday, and suggests that the Hungarian export sector is still performing well. We continue to believe that the stumbling of the industry in December was a one-off event.

Traders' comments:

HUF: Market opened higher in the morning and traded in a tight range the whole day with not too much turnover.

PLN: Before the 2y benchmark auction the market opened with slightly higher yields. The auction was well received, MinFin sold in total PLN 5.2 bn OK0113 with an average yield of 5.04% (current market). After the auction market activity was moderate.

RON: Quite an active day with the swap curve continuing flattening, 1v2y trading at 16 and 17 down from 22/27 previous days close. 2v5y was also lower trading at 30 down from 32*37 the day before. Bond and bills were better offered as well, but not too many trades were reported except of DBN023 at 7.18%

CEE CDS: After the strong performance recently we saw some profit taking in CEE CDS yesterday. Equity markets should lead he wayin the near future.

Sursa: http://www.erstegroup.com

Tags: auction macro market euro

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