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Erste CEE Macro Comments

RO Macro: Today, the National Institute of Statistics will release the flash estimate for 4Q10 real GDP. Our forecast shows that Romania remained in recession with real GDP falling 0.3% q/q (seasonally-adjusted data) and 1% y/y.

Severe fiscal consolidation measures implemented by the government last summer are expected to have had highly negative effects on household consumption. For 2011, we maintain our estimate of small positive economic growth of 1.2% which is highly dependent on a resumption of global capital inflows. As inflationary pressures subside, the NBR is expected to start to cut rates again. We maintain our estimate for the end-2011 key rate at 5.75%.

HU Macro: Today, the flash estimate of 4Q10 GDP is expected to show 2.2% y/y growth after the 1.7% reading for the third quarter. This would put the overall 2010 average GDP figure at 1.2%. The forecast is plagued by downward risks due to the disappointing industrial output data for December (for which we will also receive detailed figures today). However, we think that the poor performance of industry in December was a one-off event. On the absorption side, we have seen better than expected figures for the trade balance for both November and December. The January CPI figure will also be published alongside the GDP release. We expect a 4.4% annual reading (+1.2% m/m). The high monthly figure that we expect is due to the usual price increases in the first month of the year - but the monthly increase will also be due to considerable fuel and food price increases in monthly terms (there was a substantial gasoline price increase in January 2010 due to tax changes). Core inflation was close to 2% in recent months. We have not yet seen any considerable signs of increases in demand inflation and second-round effects of price shocks are still yet to be seen. 6x9 FRAs currently price in 3 month rates 47 bps above our forecast.

CZ Macro: The flash estimate of 4Q10 GDP in the Czech Republic is seen at around 0.8% q/q (3.2% y/y) by both us and the market. While no structure is to be revealed, we expect the largest y/y contribution to have come from exports and fixed investments with a small positive contribution from households. A surprise on the weaker side could prompt a correction on the excessive rate hike expectations priced into the FRA curve.

PL Macro: Today's data on January inflation should confirm a continued acceleration of annual price growth. Specifically, we expect it to have increased to 3.3%, compared to 3.1% in December. The increase is expected to be driven primarily by external factors (commodity prices) but the role of domestic factors is starting to grow as well with a VAT increase and slowly reviving domestic demand putting upward pressure on prices. We expect money market rates to go up and the PLN to strengthen vs the Euro over the course of this year.

UA IMF: A local news agency reported that there may be an IMF mission statement by the end of Tuesday, citing its own source. The IMF mission was supposed to end its work on Friday but continued its stay to agree on several details on energy and pension sector reforms. Prime Minister Azarov, in turn, stated today that Ukraine and the IMF have reached a consensus on almost all key areas. The government tried to persuade the IMF to follow a more lenient schedule for energy price increases and changes to pension reform, so we may see the IMF program modified. We expect an IMF mission statement today, with a positive recommendation to issue the next loan tranche to Ukraine. We expect UAH to appreciate 8.5% vs the Euro by year end.

RO Bonds: The MinFin sold 6-month T-bills worth RON 600mn at 6.55%, down from 6.71% at the previous auction in December 2010. Investors submitted total bids worth RON 885mn. As the fiscal consolidation efforts are set to continue within a new agreement with the IMF, we foresee 5Y yields at 6.6% in December.

Traders' comments:

RON: Demand in yesterdays 6m T-bill auction was surprisingly low. The MoF placed the full amount at the price of higher yields. IRS jumped 10 bps.

CEE CDS: With CEE FX in consolidation mode, equities undecided, WE SovX backing up as EU Finance Ministers play for time and headline risk in the Middle East, CEE CDS are softer.

Sursa: http://www.erstegroup.com

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